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Author: 


Bexell,  John  Andrew 


Title: 


A  survey  of  typical 
cooperative  stores  in 

Place: 

Washington,  D.C. 

Date: 

1916 


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MASTER   NEGATIVE   * 


COLUMBIA  UNIVERSITY  LIBRARIES 
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Bexell,  John  Andrew. 

...  A  survey  of  typical  cooperative  stores  in  the  United 
States.  By  J.  A.  Bexell  ...  Hector  Macpherson  ...  and 
W.  H.  Kerr  ...    Washington,  Govt,  print,  off.,  1916. 

cover-title,  32  p.  incl.  tables,  ii  pi.  on  1  1.  23'".  (U.  S.  Dept.  of 
agriculture.    Bulletin  no.  394) 

Contribution  from  the  Office  of  markets  and  rural  organization. 


JL  Cooperation,    il.  Cooperative  storesi       i.  Macpherson,  Hector,  joint 
iifTnor.    II.  Kerr,  William  Horace,  joint  author. 


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UNITED  STATES  DEPARTMENT  OF  AtfRICULTURE 

BULLETIN  No.  394 

Contribution  from  Office  of  Markets  and  Rural  Organization 
CHARLES  J.  BRAND,  Cliief 


Washington,  D.  C. 


November  3, 1916 


A  SURVEY  OF 

TYPICAL  COOPERATIVE  STORES 

IN  THE  UNITED  STATES 


By 

J.  A.  BEXELL,  Dean,  School  of  Commerce,  Oregon  Agricultural  College; 
HECTOR  MACPHERSON,  Director,  Bureau  of  Markets,  Ore- 
gon Agricultural  College;  and  W.  H.  KERR,  Investigator 
in  Market  Business  Practice,  Office  of  Markets 
and  Rural  Organization,  United  States 
Department  of  Agriculture 


CONTENTS 


Pago 
Purpose,  Scope,  and  Metliod  of  tlie 

Surrey 1 

Origin  of  tlie  Stores S 

General  Organization 6 

Operating  Organisation 8 

Finance 9 

Credit 12 

Poreliasinf 13 


Selling 

Accounting,  Reports,  and  Auditing 

Equipment 

The  Balance  Sheet 

Operating  Expenses    .... 
Observations  and  Conclusions     . 
Appendix 


Page 
14 
IS 
20 
20 
21 

,  26 
SO 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

1916 


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UNITED  STATES  DEPARTMENT  OF  AGRICULTURE 


BULLETIN  No.  394 


Contribution  from  Office  of  Markets  and  Rural  Organization 
^Vl^  CHARLES  J.  BRAND.  Chief 


Washington,  D.  C. 


November  3, 1916 


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A  SURVEY  OF  TYPICAL  COOPERATIVE  STORES  IN 

THE  UNITED  STATES. 

By  J.  A.  Bexell,  Dean,  School  of  Commerce,  Oregon  Agricultural  College; 
Hectob  Macphebson,  Director,  Bureau  of  Markets,  Oregon  Agricultural  Col- 
lege; and  W.  H.  Kebk,  Investigator  in  Market  Business  Practice,  Office  of 
Markets  and  Rural  Organisation,  United  States  Department  of  Agriculture. 


CONTENTS. 


Page. 

Purpose,  scope,  and  method  of  the  survey ...  1 

Origin  of  the  stores 3 

General  organization 6 

Operating  organization 8 

Finance 9 

Credit 12 

Purchasing 13 


Page. 

Sellfaig 14 

Accounting,  reports,  and  auditing 16 

Equipment 20 

The  balance  sheet 20 

Operating  expenses 21 

Observations  and  conclusions 26 

Appendix 30 


THE  PURPOSE,  SCOPE,  AND  METHOD  OF  THE  SURVEY. 

The  financial  success  of  the  Rochdale  Cooperative  Store  in  Great 
Britain,  as  well  as  in  several  other  European  countries,  notably 
Denmark  and  Switzerland,  has  aroused  a  widespread  interest  in  that 
type  of  cooperation  in  the  United  States.  This  interest  has  resulted 
in  the  establishment  of  stores  in  all  parts  of  the  country,  until  it  is 
estimated  that  there  are  now  approximately  400  in  the  United  States, 
distributed  mainly  in  the  North  Central  States  and  on  the  Pacific 

coast. 

The  movement  has  probably  been  stimulated  by  investigations 
carried  on  by  the  governments  of  various  cities  and  States  which 
have  emphasized  the  cost  of  distribution  as  the  chief  factor  in  the 
high  cost  of  living.  The  Department  of  Agriculture,  as  well  as  the 
various  universities,  agricultural  colleges,  and  departments  of  state 
have  received  appeals  for  information  regarding  the  feasibility  of 
the  cooperative  store  as  a  remedy  for  the  great  expense  of  distribution 
and  the  resulting  high  cost  of  living. 

With  a  view  to  obtaining  some  definite  information  on  this  subject, 
the  Office  of  Markets  and  Rural  Organization,  in  cooperation  with 
the  School  of  Commerce  of  the  Oregon  Agricultural  College,  during 

NoTB. — This  bulletin  should  be  of  interest  to  cooperative  stores  and  to  producers  and 
consumers  generally.  -  ,-    » 

47«14"— Bull.  394— 1« 1  -<*Lr5  ^"^  S  . 


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BULLETIN   304,  IT.    S.   DEPARTMENT  OF   AGRICULTURE. 


A  SURVEY  OF   TYPICAL  COOPERATIVE   STORES. 


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the  summer  of  1015,  imdertook  to  make  a  survey  of  a  number  of  typi- 
cal cooperative  stores.  The  sole  purpose  of  the  survey  was  that  some 
disinterested  agency  might  be  informed  as  accurately  as  possible 
regarding  the  subject  of  cooperative  stores,  and  that  some  measure 
of  guidance  might  be  extended  to  stores  wliich  are  now  operating  and 
t6  those  which  may  be  formed  in  the  future. 

No  attempt  was  made  to  visit  or  question  all  the  cooperative 
stores  in  any  State  visited.  The  investigation  was  confined  to  a 
number  of  representative  stores  which  were  chosen  after  a  study 
of  all  available  information.  Care  was  taken  to  include  as  nearly 
as  possible  representatives  of  all  existing  types.  Among  them  are 
found  some  of  the  most  successful  concerns,  as  well  as  others  which, 
at  the  time  of  the  survey,  had  already  gone  into  the  hands  of  re- 
ceivers. A  study  of  the  tables  makes  clear  the  great  range  of  stores 
investigated.  The  stores  selected  were  in  10  different  States:  Miclii- 
gan,  Illinois,  Wisconsin,  Minnesota,  North  Dakota,  Iowa,  Kansas, 
California,  Oregon,  and  Washington. 

A  list  of  questions,  arranged  in  groups,  was  drawn  up  as  shown 
on  page  3.  The  investigator  made  a  personal  visit  to  each  store, 
went  over  the  entire  list  of  questions  with  the  manager,  and  supple- 
mented the  questionnaire  by  notes  on  points  which  could  not  be 
covered  in  this  categorical  form. 

The  present  bulletin  covers  the  material  collected  from  60  stores, 
but  almost  half  of  these  were  unable  to  supply  sufficiently  accurate 
data  to  be  included  in  Table  X.  For  the  most  part,  the  tables  are 
allowed  to  speak  for  themselves.  The  supplementary  reading  matter 
is  intended  merely  to  bring  out  facts  wliich  either  can  not  be  included 
in  the  tables  or  which  might  escape  the  attention  of  the  student  if 
specific  reference  were  not  made  to  them.  In  the  questionnaire  (p.  3) 
the  figures  represent  averages  for  the  stores  answering  the  (]uestion. 
which  number  is  indicated  in  parentheses.  The  results  may  be  studied 
to  better  advantage  by  reference  to  the  different  tables. 

At  the  outset  it  must  be  made  clear  that  neither  the  tables  nor 
the  observations  make  any  pretense  of  finality.  At  the  same  time, 
it  is  believed  that  they  are  sufficiently  reliable  to  offer  timely  sug- 
gestions to  all  who  are  interested  in  the  cooperative-store  movement. 
The  investigator  used  as  much  precaution  to  obtain  accurate  data  as 
the  limitations  of  tha  survey  would  permit.  Nearly  all  of  the  results 
are  based  on  certified  reports.  In  a  few  instances  careful  estimates 
were  accepted:  but  these,  it  is  believed,  in  no  case  materially  affect 

Noxa.— For  further  discussion  of  cooperative  purchasing  of  farm  supplles^see  Carver, 
T.  N.  :  The  Organization  of  a  Rural  rommuuity,  Department  of  Agriculture  Yearbook,  1014 
(separate  632),  and  Baasett,  C.  E. :  The  Cooperative  Purchase  of  Farm  Supplies.  Depart- 
ment of  Agriculture  Yearbooli,  1915   (separate  658). 


the  results.  Where  such  estimates  appear  doubtful  they  have  been 
eliminated.  This  accounts  in  part  for  the  varying  number  of  asso- 
ciations answering  the  different  questions. 

For  obvious  reasons  care  has  been  taken  to  conceal  both  the  identity 
and  locality  of  the  stores  investigated.  The  numbers  in  Table  10  bear 
no  relation  to  the  order  in  which  the  stores  were  visited  nor  to  the 
numbers  on  the  questionnaires.  Stores  which  had  been  recently  estab- 
lished and  which  had  as  yet  little  or  no  experience  of  value  were 
usuall}^  omitted.  Almost  without  exception  the  investigator  found 
the  store  managers  willing  to  cooperate  in  attaining  the  object  of  the 
survey  and  glad  to  furnish  all  the  information  in  their  possession. 

ORIGIN  OF  THE  STORES. 

Inquiry  into  the  origin  of  the  stores  investigated  revealed  a  variety 
of  causes.  In  some  cases  the  stores  were  started  as  a  protest  against 
real  or  fancied  abuses.  In  others  the  association  was  organized  on 
the  initiative  of  outside  promoters  who  make  a  business  of  organizing 
cooperative  stores.  In  still  other  cases  there  is  reason  to  believe  the 
stores  were  established  on  the  initiative  of  individuals  who  expected 
to  obtain  permanent  employment  in  the  store. 

As  will  be  noticed  by  the  answers  to  questions  6  and  7,  there  were 
20  cases  in  which  an  established  business  was  purchased.  A  gi-eat 
deal  has  been  said  in  favor  of  this  practice.  It  has  certain  advan- 
tages, to  be  sure,  but  from  the  cases  examined  in  the  present  survey 
the  advantages  of  the  established  business  appear  to  have  been  offset 
by  serious  disadvantages.  In  some  instances  failing  concerns  suc- 
ceeded in  unloading  stocks  of  goods  upon  the  cooperative  association 
at  excessively  high  prices  and  with  liberal  allowances  for  good  will 
thrown  in.  In  other  cases  the  association  found  itself  with  a  large 
proportion  of  the  purchased  stock  either  shelf  worn  or  poorly  adapted 
to  the  needs  of  the  community. 

QUESTIONNAIBE    ON    THE    BUSINESS    PBACTICE    OF    CoOPERATm:    STORES.* 


Report  No. 


Date ,  1915. 


Information  obtained  by Information  given  by 

I.  Oeiieral: 

1.  Name: ;  2.  City: ;  3.  Street  and  No. ;  4.  County: ; 

5.  State: ;  6.  Was  new  business  started:   (20)   Yes;  7.  Estab- 
lished   business    purchased;     (20)     Yes;    8.  Principal    line:    ; 

9.  Secondary   lines: ;   10.  Principal   industry   in  locality:   (31) 

Farming;  11.  Is  location  desirable:    (37)   Good;  12.  Present  mana- 
ger:   ;  13.  His  experience: 


1  Numbers  in  parentheses  are  stores  reporting.  In  most  cases  the  difference  between 
the  number  given  and  60,  the  total  number  surveyed,  were  either  answered  in  the  oppo- 
site or  not  at  all.     Where  not  qualified  figures  represent  averages. 


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BULLETIN  394,  U.   S.  DEPARTMENT  OP  AGRICTJLTURE. 


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II.  External  or  corporate  organization: 

14.  Organized  under  cooperative  law:  (32)  Yes;  15.  Corporation  law: 
(10)  Yes;  16.  Number  of  members  (43)  228;  17.  Condition  of  mem- 
bership:   ;  Vote:  (40)  One  per  member;  19.  Principal  nationality 

of  members  (49)  American  born;  20.  President:  (46)  Yes;  21.  Vice 
president:  (35)  Yes;  22.  Secretary:  (38)  Yes;  23.  Treasurer:   (34) 

Yes;  24.  Auditors  (24)  Yes;  25.  Other  officers: ;  26.  Directors: 

(43)  5 ;  27.  Term  of  office :  (34)  One  year ;  28.  Committees  and  duties : 

;  29.  Branches:  (5)  Yes;  30.  Controlled  by  grange:  (2)  Yes;  31. 

Controlled  by  farmers'  union:  (1)  Yes. 

III.  Internal  or  operating  organisation: 

32.  General  manager:  (47)  Yes;  33.  Sales  manager:  (7)  Yes;  34. 
Buyer:  (4)  Yes;  35.  Cashier:  (10)  Yes;  36.  Bookkeepers:  (31)  Yes; 
37.  Salesmen:  (44)  5;  38.  Saleswomen:  (28)  3;  39.  Stenographers: 
(3)  Yes;  40.  Departments:  (49)  2;  41.  Is  responsibilitv  definite: 
(27)  No. 

IV.  Finance: 

42.  Capital  authorized:    (32)    .$45,437;  43.   Subscribed:    (41)   $20,143; 
44.  Paid  in:   (50)   $16,627;  45.  Par  value  of  shares:    (44)   $53;  46.' 

How  transferable: ;  47.  Amount  may  be  held  by  member:  (31) 

High  $8,000.  low  $10,  average  $1,200;  48.  Interest  paid  on  stock:  (37) 
Yes;  49.  Paid  annually:  (34)  -Yes;  50.  Semiannually:  (40)  No;  5L 
Dividends  to  members:  (35)  Yes;  52.  Dividends  to  nonmembers: 
(18)  Yes;  53.  Dividends  paid  annually:  (30)'  Yes;  54.  Semiannually: 
(39)  No;  55.  Dividends  paid  in  cash:  (27)  Yes;  56.  Dividends  in  mer- 
chandise: (29)  No;  57,  Dividends  In  stock:  (35)  No. 
V.  Credit: 

58.  Do  you  borrow  money:  (40)  Yes;  59.  Rate  of  Interest:  (37)  7  per 
cent;  60.  Are  bills  discounted  regularly:  (18)  Yes;  6L  Estimated 
saving:  (24)  .$997;  62.  Is  credit  difficult  to  obtain:  (33)  No;  63. 
Security  offered:  (26)  None;  64.  Credit  extended  to  customers:  (45) 
Yes;  65.  For  how  long:  (27)  Two  months;  66.  Losses  due  to  credit: 
(15)  $664;  67.  Are  accounts  paid  promptly:  (25)  Yes;  68.  Advan- 
tages of  credit: ;  69.  Disadvantages: (For  per  cent  credit 

sales,  see  question  80.) 
VI.  Purchasing: 

70.  Principal  market: ;  71.  From  salesmen:    (43)   Yes;  72.  From 

catalogue  houses:  (21)  No;  73.  From  manufacturers:  (24)  Yes; 
74.  Are  lowest  prices  obtained:  (27)  Yes;  75.  Estimated  produce 
bough*  from  farmers:  (22)  $12,126;  76.  Are  all  orders  reduced  to 
WTiting:    (30)   No;  77.  Invoices  checked  systematically:    (39)   Yes- 

78.  Difficulties:  

VII.  Selling: 

79.  Per  cent  country  trade:  (43)  63;  80.  Per  cent  town  trade:  (43) 
37;  81.  Per  cent  membership  trade  (42)  60;  82.  Nonmembership 
trade:  (42)  40;  83.  Per  cent  active  members  (37)  80;  84.  Nonac- 
tive:  (37)  20:  85.  Per  cent  cash  sales:  (.36)  50;  86.  Per  cent  credit 
sales:  (36)  50;  87.  Advertising  methods:  (23)  None;  88.  Delivery 
system:  (32)  Yes;  89.  Total  annual  sales  by  departments:  (45) 
$87,781;  90.  Rnte  of  profit  on  sales  by  departments:  (36)  20  per 
cent;*  91.  Store  opens:  (37)  7  a.  m. ;  92.  Closes:  (37)  7  p  m  • 
Saturdays  9  to  10. 


A  SURVEY  OF   TYPICAL  COOPERATIVE  STORES.  5 

VIII.  Accounting  and  business  methods: 

93.  When  was  system  adopted : ;  94.  Satisfactory  :    (20)   Yes ;  95. 

Defects: ;  96.  Double  entry:   (36)  Yes;  97.  How  often  is  trial 

balance  taken:  (36)  Monthly;  98.  Is  total  cash  deposited  daily: 
(28)  No;  99.  Sales  slips  used:  (42)  Yes;  100.  Are  trading  coupons 
used:  (27)  No;  lOL  Is  duplicating  billing  ledger  used:  (32)  No;  102. 
Are  cost  accounts  kept  by  departments:    (34)   No;  103.  System  of 

filing  sales  slips : __. 

IX.  Reports  and  auditing:  ,    ' 

104.  Manager's  report:  (20)  Monthly;  105.  Contents: ;  106.  Form: 

;  107.  When  is  report  presented : ;  108.  Are  audits  made  reg- 
ularly: (34)  Yes;  109.  How  often:  (11)  Monthly;  110.  By  com- 
mittee:   (21)    Yes;   111.  Cost: ;   112.  By  professional  auditor: 

(26)  No;  113.  Cost:  (15)  $56;  114.  Auditor's  report  Includes: ; 

115.  Are  members  competent:   (27)  No. 
X.  Mechanical  equipment: 

116.  Cash  register:  (39)  Yes;  117.  Customers'  account  file:  (23)  No — > 
(20)  Yes;  118.  Typewriter  (25)  Yes;  119.  Adding  machine:  (24) 
Yes;  120.  Filing  equipment:  (29)  Yes;  121.  Overhead  carrier:  (34) 
No;   122.  Check  protector:    (26)   No;  123.  Mimeograph:    (39)    No; 

124.  Addressograph :   (41)  No;  125.  Other  equipment: 

XI.  Business  forms: 

126.  Constitution  and  by-laws: ;  127.  Annual  report: ;  128. 

Stock    certificate:    ;    129.    Membership    certificate:    ;    130. 

Membership  register : ;  131.  Stock  ledger : ;  132.  Purchase 

requisition : ;  133.  Order  for  goods : ;  134.  Settlement  memo- 
randum:   ;  135.  Duplicating  sales  slip: ;  136.  Triplicating 

sales  slip: ;  137.  Customers'  ledger: ;  138.  Billing  ledger: 

;   139.   Credit  memorandum : ;    140.   Credit   rating  blank : 

;  141.  Cash  sales  ticket : ;  142.  Business  summary : ; 

143.  Cash  receipts  distribution: ;  144.  Cash  payments  distribu- 
tion : ;  145.  Check,  ordinary  form : ;  146.  Voucher  check : 

;  147.  Double  entry  ledger : ;  148.  Journal : ;  149.  Pur- 
chase register : ;  150.  Sales  register : 

XII.  Comments  on  accounting  system: 


XI I L  Resources: 

151.  Cash:  (46)  $2,074.78;  152.  Merchandise  inventories:  (46) 
$18,049.41;  153.  Equipment:  (48)  $1,640.21;  154.  Accounts  receiv- 
able: (46)  $7,386.05;  155.  Bills  receivable:  (46)  $2,070.76;  156. 
Real  estate:  (46)  $3,550.54;  157.  Miscellaneous^  (46)  $2,092.58; 
158.  Total:   (46)  $26,864.33. 

XIV.  Liabilttes: 

159.  Capital  stock:  (46)  $15,947.67;  160.  Accounts  payable:  (46) 
$5,056.09;  161.  Bills  payable:  (46)  $5,151.87;  162.  Surplus:  (46) 
$4,353.10;  163.  Undivided  profits:  (46)  $5,182.74;  164.  Unpaid  divi- 
dends: (46)  $192.28;  Miscellaneous :i  (46)  $980.58;  166.  Total:  (46) 
$36,864.33. 

1  Miscellaneous  includes  such  items  as  interest,  prepaid  insurance,  prepaid  rent,  and 
unpaid  labor.  ' 


I 


'         M-:, 


■  **>   % 


m 


t 


n 


*This  is  the  estimate  made  by  managers  (see  also  Table  10). 


« 


BULLETIN  394,  U.  6.  DEPABTMENT  OF  AGBICULTURE. 


t 


'J* 


3 


li'.i 
m 


XV.  Summary  of  overhead  ej-pensea: 

167.  Salaries  and  labor:  (31)  $4,695.93;  168.  Rent:  (23)  $881.51;  169 
Light  and  heat:  (16)  $137.14;  170.  Insurance:  (30)  $301.81;  171. 
Taxes:  (21)  $283.69;  172.  Telephone  and  telegraph:  (8)  $43  44- 
173.  Interest:  (25)  $587.83;  174.  Postage  and  stationery:  (5)' 
$174.89;  175.  Miscellaneous  (36)  $5,417.29;  Total:  (41)  $9  609  27- 
177.  Net  profit  for  last  year:  (31)  $5,749.33;  178.  Net  per  cent  profit ! 

;   179.   Per  cent  on   capital,   including  surplus  and   undivided 

profits:    

XVI.  Monthly  salaries: 

ISO.  President:  ..._ ;  18L  Secretary: ;  182.  Treasurer:  •  183 

Manager:  (42)  $106;  184.  Bookkeeper:  (27)  $68.87;  185.  Ca.shier' 
- — ;  186.  Hefld  salesman:  (31)  $74.13;  187.  Other  salesmen:  (31) 
$49.95;  188.  Saleswomen:   (26)  $32.10;  189.  Extra  labor:  •  190 

Total :   ' 

XVII.  Comments: 

191.  Is  the  business  in  satisfactory  condition:  (32)  Yes.     192.  Has  the 
business  been  reorganized:    (37)    No;    193.     Why    _       •    194    Ex 
pansion  planned:  (30)  No;  195.  Educational  propaganda:'  (30)"  No- 
19a  Probable  future :    (20)   Bright  ^  197.  Effect  on  service  to  the 

patrons: ;  1S8.  Effect  on  local   commodity  prices:   _  199 

Effect  on  the  community :  . — ;  200.  Cooperation  with  JtheV  mer- 
chants: (33)  No;  201.  How  do  expenses  compare  with  private  busi- 
ness in  town:  (12)  Same;  202.  Are  employees  members:  (24)  No- 
2as.  Do  they  share  in  profits:  ._..;  204.  Which  employees  are 
bonded :   

GENERAL  ORGANIZATION. 

Owing  to  the  fact  that  the  enactment  of  cooperative  laws  in  the 
different  States  is  a  comparatively  recent  movement,  a  large  propor- 
tion of  the  stores  examined  were  originally  established  under  the 
ordmary  corporation  laws.     Most  of  them,  however,  are  now  organ- 
ized under  cooperative  laws.     At  the    time  of  this  survey  such  law«; 
had  been  enacted  by  30  States,  including  all  of  the  States-  covered  by 
this  study.     Thirty-two  out  of  42  of  the  stores  reporting  on  questions 
14  and  15  were  then  organized  under  special  cooperative  laws.     Those 
which  still  retained  the  corporate  form  of  organization  adhered  to 
certain  cooperative  principles  which  were  made  a  matter  of  agree- 
ment between  the  members  through  their  constitution  and  by-laws 
For  example,  40  of  the  stores  had  adopted  the  principle  of  1  man 
1  vote;  while  5  of  them  adhered  to  the  plan  of  voting  \iccording- to 
investment.     It  was  noticed,  however,  that  in  the  older  associations 
established  under  the  corporate  law  there  was  a  tendency  for  the 
stock  to  pass  into  a  few  hands,  and  in  several  of  these  cases  the  store 
was  cooperative  only  in  name. 

An  attempt  was  made  to  compile  a  table  showing  the  size  and 
financial  success  of  stores  on  the  basis  of  nationality,  occupation,  and 


*  This  Is  the  opinion  of  the  managers. 


A  SURVEY  OF   TYPICAL  COOPERATIVE   STORES.  7 

religion  of  those  participating.  Although  the  figures  were  not  con- 
clusive, nor  sufficient  for  tabular  presentation,  they  seemed  to  bear 
out  the  opinion  of  many  of  the  managers  that  a  cooperative  store  is 
apt  to  be  more  successful  in  a  community  which  is  made  up  of  people 
of  one  nationality.  Similarly,  in  industrial  communities,  it  was 
found  that  stores  are  more  successful  where  a  large  percentage  of 
the  membership  is  of  the  same  occupation ;  and  at  least  one  case  was 
observed  in  which  common  church  affiliation  is  the  basis  of  successful 
cooperation. 

The  membership  ranges  from  1,600  to  30,  while  the  average  for  all 
the  stores  surveyed  was  228.  Although  there  were  some  notable 
exceptions,  as  a  general  rule  it  was  found  that  the  success  of  the 
stores  was  almost  in  direct  proportion  to  the  membership.  This  may 
be  due  to  the  fact  that  the  well-managed  store  usually  has  little  diffi- 
culty in  increasing  its  membership,  while  the  poorly  managed  store 
soon  loses  the  support  of  the  members  with  which  it  begins  operation. 

It  was  surprising  to  find  so  small  a  proportion  of  the  stores  con- 
trolled by  farmers'  organizations,  such  as  the  Grange  and  the 
Farmers'  Union.  As  a  matter  of  fact,  the  farmers'  organizations 
have  taken  (he  initiative  in  starting  many  stores,  but  not  finding 
themselves  strong  enough  to  support  the  business  out  of  their  own 
membership,  they  have  thrown  the  conditions  of  membership  open. 
Even  where  such  stores  have  been  successful,  they  have  frequently 
had  a  bad  effect  upon  the  farmers'  organization.  In  some  cases  the 
farmers,  expecting  great  things  from  their  store,  have  allowed  the 
local  farmers'  organization  to  fall  into  decay,  claiming  that  the  store 
was  all  the  organization  they  required.  In  other  cases,  where  the 
store  fathered  by  a  farmers'  organization  has  been  a  failure,  the  effect 
has  been  even  more  disastrous  to  the  association. 

The  survey  brought  out  the  fact  that  the  location  has  a  great  deal 
to  do  with  the  success  of  the  store.  The  best  location,  however,  is 
not  always  synonymous  with  the  most  expensive  or  most  central  loca- 
tion. Much  depends  upon  the  type  of  trade.  In  the  case  of  stores 
dependent  largely  upon  country  trade  the  proximity  of  horse  sheds 
and  hitching  facilities  is  an  advantage.  Such  conveniences  usually 
can  not  be  had  in  an  expensive  central  location.  On  the  other  hand, 
there  are  instances  which  tend  to  show  that  the  store  should  not  be 
located  too  far  from  the  points  where  country  roads  converge. 

Five  of  the  stores  studied  had  undertaken  the  establishment  of 
branches  in  outlying  districts.  Almost  without  exception,  the  policy 
of  establishing  such  branch  stores  was  found  to  be  unsatisfactory. 
In  all  cases  the  branches  were  found  to  be  a  heavy  drain  on  the  work- 
ing capital  of  the  parent  store.  It  was  also  found  that  the  members 
in  the  branch  district  were  inclined  to  rely  for  success  upon  the 
parent  association,  thus  weakening  the  branch.     It  appeared,  too, 


w 


8 


BULLETIN  394,  U.   S.   DEPARTMENT  OF   AGRICULTURE. 


m 


U 


m 


'I 


tiiat  the  average  manager  secured  by  cooperative  stores  lacks  the 
business  abihty  necessary  for  the  management  of  more  than  one  store 
Hence,  although  the  policy  of  establishing  branches  is  right  in  prin- 
ciple,  as  shown  ni  numerous  cases  under  private  and  corporate  man- 
agement, notably  the  well-known  chain  stores,  the  results  of  this 
survey  would  indicate  that  a  cooperative  store  should  consider  the 
matter  with  the  greatest  care  before  undertaking  the  establishment 
oi  branches. 

It  will  be  noticed  that  most  of  the  stores  have  tlie  usual  officers 
and  board  of  directors.    The  most  common  number  of  directors  is  5 
and  the  usual  term  of  office  is  1  year.    Questions  directed  upon  this 
policy  seem  to  indicate  that  the  1-year  term  does  not  give  sufficient 
stabibty  ot  policy.    Of  course,  it  frequently  happens  that  old  direc- 
tors are  reelected;  but  in  many  instances  new  directoi-s  are  elected 
at  the  end  of  each  year,  and  it  is  stated  that  by  the  time  they  leave 
office  they  are  just  begiiming  to  gain  the  experience  necessary  in  order 
to  be  of  real  value  to  the  association.    In  the  case  of  one  of  the  most 
successful  stores  many  of  the  officers  and  directors  had  served  for 
over  20  years,  and  the  by-laws  provided  that  only  one-third  of  the 
directors  should  be  elected  annually.     Even  if  new  directors  were 
elected,  which  did  not  of t«n  happen,  at  least  two-thirds  of  the  board 
were  always  made  up  of  experienced  men.    It  was  found  that  in  some 
associations  the  president  was  elected  directly  by  the  members  and 
was  ex  officio  member  of  the  board  of  directors.    In  the  majority  of 
cases,  however,  he  was  elected  by  the  members  of  the  board  from 
among  their  number.    It  would  appear  that  on  the  whole  the  latter 
plan  makes  for  greater  efficiency. 

It  is  a  common  practice  for  the  by-laws  to  provide  an  auditing  com- 
mittee of  two  or  three,  to  be  elected  from  among  the  membership  at 
Its  annual  meeting.  More  rarely  the  auditors  are  appomted  by  the 
board  of  directors.  The  experience  gained  by  those  making  the  sur- 
vey leads  to  the  conclusion  that  the  auditing  committee  should  act 
as  a  connecting  link  between  the  membership  and  the  management 
keeping  check  at  all  times  upon  the  business  practice  of  the  associa- 
tion and  counseling  the  directors  whenever  the  condition  of  the  busi- 
ness appears  to  demand  special  attention.  This  would  indicate  that 
the  auditing  committee  should  be  elected  by  the  members  at  their 
annual  meeting  and  be  made  directly  responsible  to  them. 

As  will  be  more  fully  discussed  in  a  later  section,  the  results  of  the 
survey  bring  out  very  clearly  that  one  of  the  greatest  weaknesses  of 
cooperative  stores  lies  in  the  lack  of  thoroughness  in  their  audits. 

OPERATING  ORGANIZATION. 

The  business  organization  of  a  cooi)erative  store  does  not  differ 
materially  from  that  of  any  other  retail  store.    The  business  is  usually 


A  SURVEY  OP  TYPICAL  COOPERATIVE  STORES.  9 

too  small  to  admit  of  the  type  of  efficiency  which  can  be  secured  only 
by  having  specialists  charged  with  definite  responsibility  for  certain 
divisions  of  the  work.  In  most  cases  the  manager  himself  is  com- 
pelled to  be  a  sort  of  business  jack-of-all-trades.  He  is  usually  the 
I'esponsible  head  of  the  store,  and  at  the  same  time  must  act  as  buyer, 
head  salesman,  and  bookkeeper.  The  man  who  combines  efficiency  in 
all  of  these  kinds  of  work  is  rarely  found,  and  is  usually  in  business 
for  himself.  It  is  unusual  for  cooperative  associations  to  be  willing 
or  able  to  pay  the  salary  which  will  secure  a  man  of  this  type.  The 
salaries  paid  to  the  managers  in  the  stores  under  consideration  varied 
from  $45  to  $250  per  month,  making  an  average  of  $106  a  month  for 
the  42  stores  for  which  figures  were  obtained.  This  fact  alone  is  suffi- 
cient to  explain  why  the  majority  of  the  stores  were  not  more  success- 
ful than  the  tables  indicate. 

From  the  tabulated  results  of  the  questionnaire  on  page  4  it  will 
be  noted  that  only  7  stores  report  the  employment  of  a  man  whose 
specialty  is  to  act  as  sales  manager,  4  report  a  special  buyer,  10  a 
cashier,  and  3  a  stenographer.  Thirty-one  stores  report  the  employ- 
ment of  a  bookkeeper.  Careful  inquiry,  however,  leads  to  the  con- 
viction that  all  but  a  small  proportion  of  these  men  are  not  capable 
of  keeping  a  satisfactory  set  of  accounting  records.  It  is  the  almost 
unanimous  verdict  of  the  store  managers  that  greater  attention  must 
be  given  to  the  office  end  of  the  business,  and  that  the  auditing  must 
be  more  efficiently  performed. 

FINANCE. 

The  points  covered  in  the  section  of  finance  bring  out  the  essential 
differences  between  the  corporate  and  cooperative  type  of  organiza- 
tion. In  general,  it  may  be  said  that  with  the  cooperative  type  the 
shares  of  stock  are  smaller;  that  these  shares  do  not  determine  the 
voting  power  of  the  member ;  that  paid-in  capital  stock  usually  bears 
a  fixed  rate  of  interest,  while  dividends  are  based  upon  the  business 
and  not  upon  holdings  of  stock;  and  that  certain  restrictions  are 
placed  upon  stock  transfer.  The  laws  of  most  States  require  that  a 
definite  authorized  capital  be  fixed  in  the  charter  or  articles  of  asso- 
ciation, while  in  others  the  amount  of  stock  need  not  be  fixed.  The 
latter  practice  corresponds  with  the  cooperative  laws  of  several 
European  countries  and  aims  to  permit  an  indefinite  growth  in  the 
membership  and  capital  stock. 

For  the  32  stores  reporting  the  authorized  capital,  the  average  was 
$45,437,  while  41  stores  giving  the  amount  of  capital  subscribed 
average  $20,143,  and  50  stores  giving  their  paid-in  capital  average 
$16,627.  The  shares  of  stock,  as  given  in  Table  I,  vary  from  $1  to 
$100,  with  an  average  par  value  of  $53.    When  questioned  as  to  the 

47614"— Bull.  394—16 2 


rr 


V'1 

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11 


^i. 


10  BULLETIN  S9i,  V.  S.  DEPARTMENT  OF  AGBICULTURE, 

best  size  for  a  share  of  stock,  most  managers  expressed  themselves 
as  in  favor  of  the  share  of  large  denomination.    It  seemed  to  be  the 
consensus  of  opinion  that  the  share  should  not  be  smaller  than  $25 
but  an  examination  of  Table  I  indicates  that  much  depends  upon  con- 
ditions.   The  character  and  density  of  population,  the  kind  of  busi- 
ness conducted,  nearness  to  wholesalers,  and  many  other  features 
have  a  bearing  on  the  best  size  for  a  share  of  stock.    Well-capitalized 
stores  were  found  with  shares  of  small  denomination,  while  other 
stores  are  very  msufficiently  capitalized  on  the  basis  of  $100  shares 
In  general  it  is  considered  inadvisable  for  any  store  in  the  United 
btates  to  begin  operations  ^dth  a  share  of  less  than  $10,  although 
here  again  there  are  exceptions. 

Table  I.—TJie  capitalization  of  typical  storcn. 


Number 
reporting. 


Authorized . 
Subscribed. 
Paid  up. . . 
Par  value... 
Paid  up  1... 


32 
40 
60 
44 
40 


Total. 


11,454,000 
825,898 
831,377 


High. 


764, 026 


$200,000 

106,200 

106,200 

100 


Low.       Average. 


$10,000 

305 

267 

1 


Vote:  Forty  stores  allow  1  vote  to  each  member;  5  stores  allow  l  vote  to  each  share  of  stock , 


$45,437 

20,647 

16,627 

53 

19,100 


'These  are  the  40  stores  reporting  subscribed  capital,  and  are  given  separately  for  the  sake  of  comparison. 

Most  of  the  stores  allow  members  the  privilege  of  paying  for  stock 
in  installments.  Others,  again,  sell  their  stock  and  receive  some 
form  of  note  or  agreement  to  pay  for  it  at  a  specified  time.  Botli 
of  these  practices  appear  to  have  been  greatly  abused.  The  former 
accounts  to  a  large  degree  for  the  discrepancy  between  the  paid-up 
and  subscribed  capital  as  given  in  Table  I,  and  the  result  of  the  latter 
has  been  that  many  associations  have  accepted  poorly  drawn  notes 
which  are  not  bankable,  and  which  merely  burden  the  books  of  the 
association  with  fictitious  assets. 

The  following  abstract  from  an  auditor's  report  is  illustrative  of 
an  abuse  which  has  weakened  many  of  the  cooperative  stores : 

In  view  of  the  fact  that  a  majority  of  your  members  have  not  liquidated  their 
note  obligation  in  payment  for  shares,  I  recommend  that  no  patronage  dividend 
be  declared  or  paid  covering  the  year  1914,  and  that  the  amount  be  carried  as 

^^  ^^.'ii  *  *  J  .  ^^'■'"'^  '"^'  ^"^  conclusion,  to  express  the  hope  that  the  mem- 
bers  will  pay  their  notes  and  thereby  place  the  company  where  it  rightfully 
belongs,  and  furnish  the  opportunity  for  it  to  grow  large  and  successful. 

A  feature  which  probably  has  a  greater  influence  on  the  successful 
capit^hzatioji  of  a  store  than  the  size  of  the  share  of  stock  is  the 
amount  of  capital  which  one  member  may  hold.  Some  of  the  earlier 
cooperative  laws  fixed  the  upper  limit  which  one  member  could  hold 


A  SURVEY  OF  TYPICAL  COOPEKATIVE  STOEES. 


11 


at  a  figure  which  has  since  been  recognized  as  too  low.  In  the  stores 
under  discussion  the  upper  limit  varied  from  $10  to  $8,000,  with 
some  stores  placing  no  limit.  It  is  difficult  to  say  where  the  line 
should  be  drawn.  W-ith  voting  power  restricted  to  1  vote,  with 
interest  on  capital  stock  limited  to  not  more  than  current  interest 
rates,  and  with  the  cooperative  policy  of  distributing  profits  in  pro- 
portion to  the  amount  of  business  transacted  by  each  member,  it  is 
difficult  to  see  how  serious  injustice  can  result  from  the  concentration 
of  the  bulk  of  the  capital  stock  in  the  hands  of  a  few  members. 

Of  those  stores  reporting,  37  stated  that  interest  was  paid  on  the 
capital  stock;  the  maximum  given  was  8  per  cent,  the  minimum  5, 
and  the  average  7  per  cent.  These  figures  do  not  indicate  any  great 
advantage  to  the  holders  of  capital  stock.     (See  Table  II.) 

Table  II. — Practice  as  to  the  payment  of  interest  and  dividends  on  stock. 


Question. 

Stores 

reporting 

yes. 

Stores 

reporting 

no. 

Average 
rate. 

Remarks. 

Interest  on  stock 

37 

34 

3 

35 

18 

30 

3 

27 

7 

3 

8 

Per  cent. 
7 

3,  7  per  cent;  2,  5  per  cent;  12, 

Interest  naid  annuall v 

8  per  cent;  11,  6  per  cent. 

Tntftrest  naid  semiannuallv 

Trade  dividends  naid  to  members 

9 
25 

14 

39 

9 

29 

35 

Trade  dividends  paid  to  nonmembers 

Dividends  naid  annuallv 

Usually  half  rate  paid  mem- 
bers. 

2  pay  by  means  of  a  monthly 
discount. 

Dividends  naid  semiannuallv 

Dividends  usuallv  naid  in  cash 

Dividends  usually  paid  in  merchandise 

Dividends  usuallv  naid  in  stock 

The  manifest  purpose  of  the  cooperative  store  is  to  make  savings 
for  its  members  in  the  purchase  of  household  and  other  supplies. 
Patrons  are  charged  the  customary  retail  prices  for  the  locality  i» 
which  the  store  operates.  Then,  at  the  end  of  the  specified  period, 
the  accumulated  surplus  is  distributed  in  proportion  to  the  purchases 
which  each  patron  has  made  during  the  dividend  period.  Following 
the  Rochdale  plan,  nonmembers  are  frequently  allowed  half  the  rate 
of  dividends  on  purchases  allowed  members. 

The  figures  given  in  answers  to  questions  51  and  57  of  the  question- 
naire do  not  indicate  the  degree  to  which  the  cooperative  stores  are 
attaining  their  chief  object — making  savings  for  patrons.  They  in- 
dicate, rather,  the  provisions  in  the  by-laws  as  to  distribution  of 
dividends  and  not  the  actual  practice.  While  the  information  given 
was  not  satisfactory  upon  this  point,  it  is  believed  that  the  vast  ma- 
jority of  the  cooperative  stores  have  been  a  disappointment  in  the 
savings  effected  for  members  and  patrons.^ 

1  See  appendix,  p.,  30.     Notes  on  the  payment  of  trade  dividends. 


!'?' 
W 


m 


m 


!:?■■' 


■*■•'■  f'lTte.?---**^- 


12 


[i 


11"^ 

Hi 

ti 

■A  ' 


4'  ' 


BULLETIN  3W,  U.  8.  DEPARTMENT  OF  AGBICULTUKE. 

CREDIT. 


Practically  all  of  the  stores  required,  at  times,  more  capital  than 
v^as  provided  by  the  sale  of  capital  stock  and  accumulated  surplus 
The  interest  paid  averaged  7  per  cent,  which  can  not  be  regarded  as 

ratLr  i    \         '"  '^''  *^  \"''''''  ^^P^"^^  "P""  it«  comme  cial 
rating.    When  a  store  is  successful  and  has  a  high  rating,  it  can  secure 

all  the  capital  ,t  needs  upon  the  note  of  the  association  For  manv 
s  rugghng  stores,  however,  the  only  way  in  which  credit  cm^d  be 
obtained  was  by  having  those  who  were  most  interested  indorse  a 
bankable  note  in  favor  of  the  association.  In  many  cases  esneci?ilv 
.■here  the  borrowing  has  been  done  to  bolster  up  a^oo 2  m'an  2 
and  ailing  business,  the  practice  of  indorsing  L  notes  oHheTs 
sociation  has  been  responsible  for  serious  losses  to  members 

Table  III.— Practice  as  to  credit. 


Question. 


Do  you  borrow  money..  . 

Rate  of  interest !^ 

fc  credit  difficult  to  obtain .' .";.■;'"■ 

Becunty  req  uired 

Are  bills  discounted  ropuiarly 

±.stlmated  annual  discount 
Credit  extended  to  customers.' .* .* " " 
Losses  due  to  credits. 
Accoun  ts  paid  promptly  


Number 
report- 
ing. 


37 


I/OW. 


24 

•  •  •  I 

15 


High. 


Average. 


T 


6p.  c't.     iop.cV. 


$150 
$25 


S6,949 
'i4,23i 


7  p.  c't. 

1997 

$664 


Yes. 


No. 


40 

16 
18 

*  ■  •  < 

45 


I 


25 


33 
20 
15 


2 
5 


iy.l^'^t  •^''"''!!  ^^'^^  ^"""^^  '^^^""  systematically  used  their  credit  at 

iL  f  .  ?!  .  1  ^^  ^^"'  '^  "^^  coininon,  however,  is  indicated  bv 
<he  fact  that  only  18  stores  reported  the  uniform  practice  oUa kin ^ 
advantage  of  discount,  wliile  15  never  discounted  thS^Amo^^ 
those  reporting  the  practice  of  discounting  their  b  lis  thet^W 
ranged  from  a  minimum  of  $150  to  a  maximum  of  $7,000  ay  a^^^ 
with  an  average  of  $1,673  for  the  18  stores  taking  regulax  discounts 

sot'Tl^fift  ''^'  f^^'  rr'   ^^^^^^^'  is'^ven  rS 

pZoII  T^^^^       ^'''.    ''  '^'  '''^  ^^'"^"^^  ^^'^  -  considerable 
S^Tv.        ^^^.^P^^ting  expense.     In   addition  to  the  saving 
effected    the  practice  of  taking  discounts  has  an  important  eS 
upon  the  wholesa  e  hou^  and  the  buying  efficiency  of^lVe  lie     ' 
Of  50  stores,  only  2  were  found  to  be  doing  a  strictly  cash  bus  Ls 
Most  of  the  managers  claimed  that  the  extension  of  credit  t^cus 
tomers  was  absolutely  necessary.     The  time  for  which  cdk        s 
allowed  varied  from  1  to  6  months,  the  average  credit  per  3  gi v^ 
for  2i  stores  being  2  months.  ^  ^    ^ 


A  SURVEY  OF   TYPICAL  COOPERATIVE   STORES. 


13 


The  practice  is  unfair  in  that  the  man  who  pays  cash  usually 
secures  goods  at  practically  the  same  price  as  the  man  w^ho  uses  6 
months'  credit.  This  unfairness  has  led  to  the  practice  among  a 
few  of  the  most  successful  stores  of  charging  interest  on  all  bills 
running  over  30  days.  In  many  cases  it  was  found  that  inexperienced 
managers,  in  their  enthusiasm  to  expand  the  business,  had  involved 
the  association  in  serious  difficulty  by  a  too  wide  and  promiscuous 
granting  of  credit  to  customers.  In  some  instances  it  was  found  that 
the  accounts  receivable  amounted  to  more  than  the  entire  subscribed 
capital  stock. 

On  the  other  hand,  one  of  the  advantages  claimed  for  the  coopei-a- 
tive  farmere'  store  is  that  it  serves  as  a  credit  institution,  tiding 
the  members  over  until  harvest  or  until  "  pay  day."  Indeed,  one  of 
the  most  successful  stores  preferred  to  do  a  credit  business,  and 
reported  that  98  per  cent  of  its  trade  w^as  on  this  basis.  The  reasons 
given  for  its  preference  were  greater  simplicity  and  uniformity  in 
its  accounting  system  and  the  larger  volume  of  trade  resulting  from 
the  credit  business.  The  reports  of  36  stores  showed  that,  on  the 
average,  half  of  the  sales  were  on  credit  and  the  other  half  cash. 

For  24  stores  the  average  annual  loss  due  to  the  granting  of  credit 
is  1.17  per  cent.  This  is  much  higher  than  the  average  for  stores 
under  private  management,  as  indicated  by  the  results  of  the  Harvard 
survey,  which  found  the  common  loss  for  bad  debts  to  be  one-half 
of  1  per  cent.'  Moreover,  there  is  reason  to  believe  that  this  does 
not  tell  the  whole  story.  As  a  matter  of  fact,  the  estimate  placed  by 
the  manager  of  an  unsuccessful  cooperative  store  upon  the  uncollec- 
tible proportion  of  the  accounts  and  bills  receivable,  which  he  is 
carrying  upon  his  books,  is  very  unreliable.  In  one  case,  which  is 
probably  typical  of  many  others,  the  amount  was  estimated  at  $145 
for  the  year,  when,  in  reality,  the  amount  which  was^afterwards 
found  to  be  uncollectible  was  nearer  $2,000.  This  loss,  of  course, 
falls  upon  all  who  pay  for  their  goods. 

Entirely  apart  from  the  loss  involved,  the  credit  system  is  unjust. 
Either  those  enjoying  credit  should  pay  interest,  or  customers  pay- 
ing cash  should  receive  a  cash  discount.  The  reports  of  those  who 
have  tried  to  do  business  on  a  cash  basis  indicate  that  the  credit  svs- 
tem  has  become  so  rooted  in  American  business  as  to  be  practically 
ineradicable.  Many  of  those  questioned  characterized  it  as  "  a  ne<?es- 
sary  evil." 

PURCHASING. 

Table  IV,  showing  the  practice  regarding  purchasing,  is  largely 
self-explanatory.     One  important  fact,  however,  is  not  brought  out 

*  Harvard  University.     Bureau  of  Business  Research.     Bui.  5  :  Expenses  in  Operating 
Retail  Grocery  Stores.     1915.     Sup.  7. 


I 


14 


BULLETIN  394,   t'.  S.  DEPARTMENT  OF  AGRICULTtTRE. 


1^ 


by  the  table— a  fact  which  many  merchants  overlook.  The  most  suc- 
cessful stores  confine  their  purchases  to  a  few  reliable  firms,  rather 
than  scatter  their  orders  among  too  many  wholesale  houses.  In  fact, 
one  store  on  the  verge  of  bankruptcy  ascribed  its  failure  in  large  part 
to  this  practice,  since,  in  time  of  difficulty,  it  could  claim  but  little 
support  from  its  numerous  creditors.  Among  the  many  objections 
to  scattered  buying  are:  (1)  Greatly  increased  and  useless'office  work; 
(2)  divided  support  of  the  wholesalers;  (3)  excessive  buying  and 
danger  of  overexpansion ;  (4)  too  great  diversity  of  stock;'  and  (5) 
loss  of  advertising  opportunity  afforded  by  standard  lines. 

Taule  IV. — Practice  in  ptirchamip. 


Question. 

No.  re- 
peat inc 

Low. 

nigh. 

Aver- 
age. 

Yes. 

Na. 

Largely  from  salesman , 

From  catalogue  houses . .  .■ ', 

From  manufacturers \',\\ 

43 
19 
24 

27 

io" 

on 

a 

19 

Produce  from  f:\rmers 

All  orders  reduced  to  writincr. 

lu  voices  checked  systematically '.'.'.'.'.'.'.'.'.'.'." 

22* 

ii.'soo" 

J35.666" 

iuVm 

11 
80 

' — — ^— — ____^___ 

AV                     is 

It 


on 
e 


is  interesting  to  note  that  only  27  stores  believed  that  they 
bought  at  the  lowest  price,  while  11  said  positively  that  they  bought 
at  a  disadvantage.     The  reasons  given  were:  (1)  Inability  to  take 
advantage  of  discounts,  and  (2)  in  a  few  cases,  discrimination  o 
the  part  of  wholesale  houses  against  the  cooperative  store.     Th 
former  handicap  is  to  be  traced  generally  to  such  causes  as  insuffi- 
cient original  capital,  tying  up  of  capital  in  accounts  receivable,  over- 
investment in  slow-moving  or  dead  stock,  loss  of  capital  through 
bad  management,  etc.    On  the  latter  point  a  few  stores  asserted  thTit 
they  were  sometimes  discriminated  against  in  the  prices  they  were 
compelled  to  pay;  that  they  were  not  given  equal  credit  privileges 
with  private  and  corporate  enterprises ;  and  that  they  were  refused 
certain  lines  of  goods  at  any  price.     Credit  men  say  that  this  obtains 
only  when  the  store  has  unsatisfactory  credit  rating  or  record  and 
when  cut  prices  and  discounts  are  allowed  on  fixed-price  goods. 

SELLING. 

As  shown  in  Tables  V  and  X,  the  annual  sales  of  the  stores  under 
consideration  ranged  from  $7,500  to  $628,703,  with  an  average  ap- 
proximating $88,000.  Table  X  includes  only  35  out  of  the  60  stores 
visited  during  the  survey,  and  it  will  be  noticed  that  of  these  5  were 
unable  to  give  sufficiently  complete  data  for  a  statistical  estimate 
of  their  financial  success. 


A  SURVEY  OF  TYPICAL  COOPERATIVE  STORES. 


Table  V. — Practice  as  to  selling. 


15 


Question. 


Per  cent  coimtry  trade 

Per  cent  town  trade 

Per  cent  membership  trade . . . . 
Per  cent  nonmembership  trade. 

Per  cent  active  members 

Per  cent  nonactive  meml^ers. . . 

Per  cent  cash  sales 

Per  cent  credit  sales 

Total  sales 

Rate  of  profit  on  sales  ^ 


Stores  re- 
port ing. 

Low. 

High. 

43 

0 

95 

43 

5 

100 

42 

10 

98J 

42 

li 

90 

37 

25 

100 

37 

0 

to 

36 

2 

85 

36 

15 

98 

45 

$7,500 

$623,703 

36 

12  p.  ct. 

30p.ct. 

Average. 


63 
37 
60 
40 
80 
20 
50 
50 
$87, 781 
20  p.  ct. 


I  This  is  the  estimate  made  by  managers  (see  Table  X). 

The  percentage  of  expense  to  sales  indicates  a  wide  variation, 
ranging  from  7  to  17  per  cent.  Even  more  surprising  is  the  range  in 
the  percentage  of  gross  profit  made  on  the  business,  ranging  from 
10.5  per  cent  to  24.5  per  cent.  In  accounting  for  this  range  one  ele- 
ment is  the  kind  of  business.  The  higher  figures  are  for  businesses 
having  a  large  trade  in  dry  goods,  shoes,  and  men's  furnishings, 
while  the  lower  rates  were  made  in  stores  handling  groceries  and  a 
few  farm  staples.  The  percentage  of  net  profits  to  sales  shows  the 
variation  one  would  expect. 

Almost  all  of  the  stores  under  survey  were  located  in  country 
towns,  with  the  majority  of  the  membership  drawn  from  the  farms. 
Hence  there  is  an  average  of  63  per  cent  of  farmers'  patronage  for  the 
43  stores  reporting,  with  a  range  of  from  4  per  cent  to  95  per  cent  of 
country  trade. 

Most  of  the  stores  reported  a  large  percentage  of  nonmembership 
trade,  the  range  being  from  1^  per  cent  to  90  per  cent,  with  an  average 
for  the  42  stores  reporting  of  40  per  cent  of  the  trade  from  non- 
members. 

This  nonmembership  patronage  is  due  to  several  factors.  Eighteen 
of  the  stores  hold  out  the  prospect  of  some  dividends  on  purchases 
to  nonmembers,  thus  securing  trade.  Again,  many  persons  are  in 
sympathy  with  the  cooperative  movement  and  expect  to  become 
members  if  the  store  succeeds,  and  in  the  meanwhile  they  give  it  a 
share  of  their  trade.  FinalW,  a  great  deal  of  the  nonmembership 
trade  which  falls  to  cooperative  stores  is  more  or  less  accidental  and 
due  to  the  fact  that  many  Americans  gite  little  thought  to  their 
choice  of  a  place  to  trade.  This  indifference  also  helps  to  some  extent 
to  account  for  the  fact  that  34  stores  reported  an  average  of  20  per 
cent  of  their  members  as  "  nonactive,"  showing  little  interest  in  the 
store  and  giving  it  practically  none  of  their  trade. 

It  was  found  that  success,  loyalty  of  members,  and  nonmember- 
ship trade  hang  very  closely  together.  Let  a  store  fall  behind  and 
fail  to  pay  dividends  and  it  soon  loses  the  support  of  both  members 


f 


h 


I-:. 


'•C-l 

m 


^ 


u 


4'; 


i'x-L.  I.  ' 


^i* 


16  BULLETIN  3&4,  U.  S.  DEPARTMENT  OF  AGRICULTURE. 

and  nonmembers.  The  opposite  case  is  illustrated  by  the  experience 
of  one  of  the  most,  successful  stores,  which  in  26  years  has  missed 
paying  a  dividend  but  once.  It  reported  100  per  cent  active  mem- 
bers and  a  large  nonmembership  trade. 

It  must  be  admitted  that  in  general  the  results  in  net  profits  are 
J  somewhat  discouraging.     Only  11  stores  out  of  60,  or  18^  per  cent, 

^  were  able  to  show  a  net  profit  of  5  per  cent  or  over. 

If  we  conclude,  as  we  are  forced  to  do,  by  the  supplementary  notes 
found  in  the  questionnaires,  that  the  30  stores  for  which  the  net 
profits  could  not  be  calculated  would  make  a  still  poorer  showing, 
we  are  convinced  that  much  greater  caution  should  be  exercised 
before  starting  cooperative  stores. 

ACCOUNTING,  REPORTS,  AND  AUDITING. 

One  of  the  principal  objects  of  this  survey  was  to  ascertain  the 
busmess  practice  of  existing  cooperative  stores  and  to  study  their  sys- 
tems of  accounting  and  auditing.  Questions  93  to  150  in  the  ques- 
tionnaire  show  the  different  points  which  were  studied  with  great 
care.  In  addition  to  recording  the  answers  to  these  questions,  the 
investigator  aimed  to  see  as  much  of  the  accountmg  and  office  system 
as  time  and  conditions  would  permit.  As  has  been  stated,  the  survey 
made  evident  th^t  the  business  practice,  including  the  system  of 
records,  is  probably  the  weakest  point  in  the  management  of  coop- 
erative stores.  Investigations  by  the  Office  of  Markets  and  Rural 
Organization  have  shown  this  to  be  true  of  nearly  all  other  coopera- 
tive  enterprises.^ 

This  weakness  is  due  to  lack  of  training  on  the  part  of  the  managers 
themselves,  to  inability  to  pay  the  salary  required  by  trained  ac- 
countants, and  to  the  general  failure  on  the  part  of  the  membership 
of  cooperative  associations  to  realize  the  importance  of  a  clear  and 
constant  record  of  the  state  of  their  business. 

To  the  question,  "Is  the  accounting  system  satisfactory?"  20 
managers  answered  in  the  affirmative,  16  answered  "Fair,"  9  an- 
swered in  the  negative.  The  investigator's  "  remarks  "  show  that  the 
closer  examination  which  he  made  of  the  systems  led  him  to  believe 
that  a  very  small  proportion  of  the  stores  visited  had  what  could 
reasonably  be  called  a  satisfactory  system  of  accounting.  In  fact  in 
almost  50  per  cent  of  the  cases,  the  results  of  the  attempts  to  get 
answers  to  questions  relating  to  the  status  of  the  business  showed 
that  the  managers  themselves  had  no  definite  records  from  which 
they  were  able  to  give  a  satisfactory  statement  of  the  condition  of 
the  business. 


»  Bassett,  C    E.    Moomaw.  Clarence  W..  and  Kerr.  W.  H.,  Cooperative  Marketln;?    and 

IsT^fo''  ll^'Tu^  ^r.  "J''°"  '"  ^'-  ^-  ""''''-  «^  Agriculture  Yearbook  IQli,  pp 
18^210.  Kerr  ^.11  and  Nahstoll,  G.  A.,  Cooperative  Organization  Business  Metl^ods 
U.  S,  Dept.  of  Agr.  Bulletin  178,  1916,  p.  20.  i^ieiuous, 


A  SUBVEY  OF   TYPICAL  COOPERATIVE   STORES. 
Table  VI. — t^howing  business  practice,  accounting,  and  auditing. 


17 


Question. 

Yes. 

No. 

Month- 
ly. 

Quar- 
terly. 

Semian- 
nually. 

Annu- 
ally. 

Kemarks. 

Bfttisfactorv  svstem 

20 
36 
9 
42 
.12 
10 
10 

40 

34 
21 
17 

8 

9 
5 

28 
3 
27 
32 
34 

9 

8 
22 
26 
27 

15  fair. 

Double  en trv.        

Total  cash  deposited  daily 

Sales  si  IDS  Used 

..•••••. 

- ' 

Cash  couDons  used 

Billins  ledger  used 

Cost  accounts  kept  by  depart- 
ments. 
Manager  reports  regularly 

Are  audits  made  regularly 

By  committee  of  members 

Bv  nrofessional  auditor 

20 
11 

1 

2 

18 
3 

.  9 
10 

8  report  both  monthly 

and  amiually. 
3  weekly;  3  bimonthly. 

Are  members  comnetent 

Cost  ner  vear 

1 

High,  $300;  low,  $30; 

Cash  register  used     

39 
20 
25 
24 
29 
10 
17 

6 
23 
19 
20 
15 
34 
26 

average, $56. 

Customers  account  file. 

Tvoewriter 

Ado insT  machine           

Satisfactory'  filing  equipment 

Overhead  carrier 

Check  Drotector .   .....  .  . 

One  thing  that  impressed  the  investigator  was  the  lack  of  uniform- 
ity of  sj^stems,  forms,  and  equipment.  This  lack  made  it  very  diffi- 
cult to.  secure  statistics  which  would  give  a  comparative  estimate  of 
the  success  of  the  stores.  The  investigation  conducted  by  Harvard 
University  in  its  attempt  to  bring  about  standardization  of  accounts 
and  office  methods  disclosed  the  same  lack  in  practically  all  other 
retail  stores. 

Among  cooperative  stores,  a  beginning  in  the  right  direction  has 
been  made  by  two  or  three  promoters  who  are  attempting  to  install 
uniform  systems  of  accounting  and  auditing  for  the  stores  they 
organize.  An  examination  of  the  work  of  these  promoters,  however, 
tends  to  show  that  the  good  they  are  accomplishing  is  largely  offset 
by  the  fact  that  they  have  started  many  stores  for  which  there  was 
not  sufficient  demand  in  the  locality,  and  which  were  therefore 
doomed  to  failure  from  the  start.  Moreover,  they  have  frequently 
advised  an  association  to  purchase  an  old  and  sometimes  failing 
business,  and  in  many  of  these  instances  the  cooperative  association 
found  itself  in  possession  of  a  large  stock  of  shopworn  goods  and  a 
tradition  for  inefficiency  in  the  store  which  was  hard  to  live  down, 
although  it  had  been  paid  for  as  "  good  will." 

No  less  than  36  of  the  stores  reported  that  their  books  were  kept 
by  double  entry ;  but  where  it  was  possible  to  get  at  the  facts,  it  was 
found  that  the  systems  were  very  imperfect,  and  that  in  many  cases 
it  would  have  been  difficult  to  secure  a  trial  balance  from  the  records. 
It  is  probable,  however,  that  the  fundamental  weakness  is  in  the 
bookkeepers  rather  than  in  the  systems  of  accounting.  This  is  shown 
in  a  number  of  instances  where  systems  of  accounting,  installed  by 
experts,  have  become  entirely  disorganized  through  the  inefficiency 


I 


18 


BULLETIN  394,  U.  S.  DEPARTMENT  OP  AGRICULTURE. 


A  SURVEY  OF   TYPICAL  COOPERATIVE  STORES. 


19 


I '4' 


1 1, 


If 


i! 


4 


I- 


of  the  bookkeepers.  On  the  other  hand,  one  of  the  most  successful 
stores  studied  in  the  survey  had  an  accounting  system  which  was 
crude  and  out  of  date.  Although  the  system  was  kept  in  a  set  of 
old-style  books,  which  necessitated  a  great  waste  of  energy,  the  work 
was  done  so  thoroughly  that  the  records  were  up  to  date  at  all  times, 
and  at  a  moment's  notice  the  management  could  find  out  the  exact 
state  of  the  business. 

One  good  feature  in  the  systems  of  records  is  the  almost  universal 
use  of  the  duplicating  or  triplicating  sales  slips.  In  those  cases  where 
the  triplicating  sales  slip  was  used  systematically,  and  the  triplicates 
carefully  checked  at  the  close  of  each  day,  the  office  system  was  found 
to  be  securing  fairly  accurate  results. 

The  cash  coupon  seems  to  have  gone  out  of  favor;  only  12  reported 
using  it  and  27  answered  in  the  negative.  Among  the  12,  several 
forms  were  found.  The  most  common  was  the  book  form  with  cou- 
pons of  different  denominations  perforated  for  ready  detachment. 
Another  type  resembled  the  mileage  book  commonly  used  on  rail- 
roads, with  cents  represented  instead  of  miles.  Various  forms  of 
tickets  and  metal  checks  were  used  in  paying  for  produce.  Like  the 
coupons,  these  were  redeemable  in  goods. 

The  billing  ledger  was  reported  as  being  used  in  10  stores,  while 
32  answered  in  the  negative.  When  it  is  not  used,  amounts  of  sales 
are  either  posted  from  the  sales  slips  to  an  ordinary  ledger,  from 
which  statements  are  rendered  at  the  end  of  each  month,  or  the  sales 
slips  are  filed  in  the  short-account  filing  cabinet  as  customers'  ledger 
accounts. 

Ten  stores  reported  that  they  were  keeping  cost  accounts  by  de- 
partments, while  34  reported  in  the  negative.  Further  examination, 
however,  showed  clearly  that  not  over  1  or  2  stores  out  of  the  60 
actually  kept  accounts  by  departments  in  such  a  way  as  to  show  the 
cost  of  operation  and  profits  for  each  department  of  the  business 
Closer  questioning  revealed  the  fact  that  the  stores  recognized  the 
advantage  of  having  departmental  accounts,  and  intended  to  or- 
ganize their  bookkeeping  system  on  that  plan ;  but  for  various  rea- 
sons, usually  because  of  the  lack  of  a  sufficiently  trained  bookkeeper, 
they  had  not  yet  put  their  plans  into  operation. 

The  by-laws  of  practically  all  of  the  stores  examined  require  that 
the  manager  shall  make  reports  at  stated  intervals.  This  provision 
seems  to  be  adhered  to  with  more  or  less  regularitv.  Twenty  of  the 
stores  required  the  manager  to  report  monthly,  18  semiannually  9 
annually,  1  quarterly,  and  1  daily.  Eight  of  those  requiring  'an 
annual  report  wei-e  included  among  those  requiring  a  monthly  report. 
Defective  as  are  the  bookkeeping  systems  of  cooperative  stores, 
their  auditing  is  still  more  unsatisfactory,  although  32  reported  that 


a  regular  audit  is  made.  Of  these,  13  required  that  the  audit  be  made 
weekly,  11  monthly,  3  bimonthly,  2  quarterly,  3  semiannually,  and 
10  annually.  In  addition  to  these,  several  others  stated  that  they  had 
an  audit  at  more  or  less  irregular  intervals.  When  questioned  as  to 
the  auditors,  21  stated  that  the  auditing  was  done  by  a  committee 
elected  from  the  membership,  while  17  reported  that  the  services  of 
a  professional  auditor  were  secured.  When  further  questioned  as  to 
the  cost  per  year  of  the  auditing,  only  15  stores  reported  a  regular 
outlay  for  this  purpose.  Of  these,  the  highest  gave  an  annual  cost 
of  $300,  while  the  lowest  was  $30,  the  average  for  the  15  stores  being 
$56  each. 

The  results  of  this  survey  demonstrate  that  the  precariousness  of 
the  cooperative  mercantile  business  is  due  to  inefficient  accounting  and 
auditing  more  than  to  any  other  single  cause.  Where  complete  records 
are  kept  of  the  business,  and  where  these  are  used  as  the  basis  of  a 
regular  monthly  financial  report,  there  is  furnished  a  continuous 
barometer  by  which  a  board  of  directors  can  take  warning  at  the  first 
signs  of  mismanagement  or  failing  business.  In  addition  to  this,  at 
the  end  of  each  fiscal  year  some  competent  outsider,  preferably  a  cer- 
tified public  accountant,  should  be  hired  to  audit  the  records  for  the 
vear. 

Of  course  it  must  be  recognized  that  efficient  bookkeeping  and  ex- 
pert auditing  cost  more  than  the  small  cooperative  business  can 
afford.  Much  progress  toward  efficiency,  however,  may  be  secured  by 
the  adoption  of  some  simple  standardized  system  of  bookkeeping  and 
business  practice  that  will  give  complete  and  accurate  records  which 
can  be  easily  interpreted.  To  meet  this  need  the  United  States 
Department  of  Agi'iculture  has  devised  a  system  which  is  described 
in  Department  Bulletin  No.  381,  entitled  "  Business  Practice  and 
Accounts  for  Cooperative  Stores." 

The  auditing  committee  elected  by  the  members  should  not  under- 
take to  do  the  annual  auditing  itself,  unless  it  enjoys  the  rare  advantage 
of  having  a  certified  public  accountant  in  its  membership.  The  mem- 
bers of  the  committee  should  know  enough  of  bookkeeping  to  appre- 
ciate the  necessity  of  accuracy.  They  should  see  to  it  that  this  is 
accomplished,  and  the  association  should  make  pro^dsion  for  the 
necessary  expense. 

These  conclusions  have  been  borne  out  by  the  long  experience  of 
the  Rochdale  stores  in  England.  Their  experience  is  summarized  in 
the  preface  to  "A  Manual  of  Auditing,"  published  by  the  Coopera- 
tive Union  (Ltd.),  with  headquarters  at  Manchester,  England,  for 
the  guidance  of  the  societies.     The  author  says: 

It  Is  esKsential  to  the  interest  of  members  of  societies  generally  that  ^eat 
attention  be  paid  to  the  importance  of  strict  audit,  first,  for  self-protection; 


II 

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BULLETIN  394,  U.   S.   DEPARTMENT  OF  AGRICULTUEE. 


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second,  in  the  interest  of  the  societies  generally ;  third,  for  the  protection  of 
the  creditors  with  whom  the  society  may  do  business ;  fourth,  for  the  main- 
tenance of  the  reputation  of  the  cooperative  movement.  The  true  end  and  aim 
of  every  system  of  audit  being  supervision,  external  check,   and   testimony 

!rrr"'!.''""'^  ."'^  "^^'"^  "*  ^'^  "^'^^'^  °*  cooperative  societies  under^ 
standing  the  principles  of  bookkeeping,  followed  up  by  an  efficient  and  strict 
audit  of  accounts.  With  this  end  in  view,  we  propose  to  lay  down  a  treatise, 
arranged  in  systematic  order,  placing  fully  before  those  who  mav  consult  the^ 
pages  a  safe  mode  for  auditing  the  transactions  of  societies. 

EQUIPMENT. 

The  answeis  to  the  questions  on  mechanical  equipment  which  are 
summarized  in  Table  VI  are  self-explanatory.  They  indicate  that  the 
average  cooperative  store  is  about  as  well  equipped  as  the  average 
store  under  private  or  corporate  management.  There  was  a  wide 
variation  in  the  stores  studied,  however.  The  equipment  ranged  from 
small,  poorly  lighted,  and  insanitary  stores,  without  cash  registers, 
faling  equipment,  or  any  other  mechanical  convenience,  to  one  or  two 
ot  the  most  modern  stores  to  be  found  in  the  United  States  (see  PI  I) 

It  was  found  that  most  of  the  managers  appreciate  the  economy  of 
many  of  the  devices  entering  into  modern  store  equipment,  apd  their 
absence  m  a  store  is  usually  due  to  a  lack  of  funds.  There  is  also 
a  general  demand  among  patrons  of  all  classes  for  a  store  that  is 
up  to  date  m  its  equipment  and  appearance.  (See  PI.  II.)  To  some 
extent  this  demand  would  seem  to  be  part  and  parcel  of  the  modern 
efliciency  movement,  which  is  reaching  a  considerable  proportion  of 
farm  homes  m  the  form  of  modem  household  conveniences  and  farm 
appliances. 

THE  BALANCE  SHEET. 

Table  VIII  and  Sections  XIII  and  XIV  of  the  questionnaire  pre- 
sent a  summary  of  the  resources  and  liabilities  for  46  stores     The 
most  interesting  figures  are  those  showing  the  surplus,  undivided 
iT^fn^/"*^   ""P*''^  dividends,  amounting  to  a  total  of  close  to 
^60,000,  or  an  average  of  almost  $10,000  per  store.    From  these  fig- 
ures It  would  appear  that  the  stores  are  in  a  very  prosperous  condi- 
tion.    Only  4  stores  out  of  46  show  a  deficit  aggregating  $9  214 
Moreover,  if  to  the  amount  of  average  surplus,  undivided  profits! 
and  unpaid  dividends,  the  capital  stock  of  $15,948  is  added    the 
total  average  resources  will  exceed  the  average  liabilities  by  $25  676 
If  the  stores  are  in  such  splendid  financial  condition,  why  is  it 
that  most  of  them  are  not  paying  regular  dividends?     The  fact  is 
that  for  the  majority  of  the  stores  this  prosperity  is  more  apparent 
than  real.    In  the  first  place,  the  stock  carried  is  too  large  and  the 
average  number  of  stock  turns  a  year  too  low.    Many  of  the  stores 
are  carrying  a  lot  of  stock  which  is  dead  for  the  greater  part  of  the 


Bul.  394,  U.  S.  Dept.  of  Agriculture. 


Plate  I. 


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INTENTIONAL  SECOND  EXPOSURE 


20 


BULLETIN  394,  U.   S.   DEPARTMENT  OF  AGEICULTUEE. 


second,  in  the  interest  of  the  societies  generally ;  third,  for  the  protection  of 
the  creditors  with  whom  tlie  society  may  do  business ;  fourtli,  for  the  main- 
tenance  of  tlie  reputation  of  tlie  cooperative  movement.  The  true  end  and  aim 
of  every  system  of  audit  being  supervision,  external  check,  and  testimony 
experience  proves  tlie  necessity  of  the  officers  of  cooperative  societies  under- 
standing the  principles  of  bookkeeping,  followed  up  by  an  efficient  and  strict 
audit  of  accounts.  With  this  end  in  view,  we  propose  to  lay  down  a  treatise 
arranged  in  systematic  order,  placing  fully  before  those  who  mav  consult  these 
pages  a  safe  mode  for  auditing  the  transactions  of  societies. 

EQUIPMENT. 

The  answers  to  the  questions  on  mechanical  equipment  which  are 
summarized  in  Table  VI  are  self-explanatory.  They  indicate  that  the 
average  cooperative  store  is  about  as  well  equipped  as  the  avera^^e 
store  under  private  or  corporate  management.  There  was  a  wide 
varuition  in  the  stores  studied,  however.  The  equipment  ranged  from 
small,  poorly  lighted,  and  insanitary  stores,  without  cash  registers 
filmg  equipment,  or  any  other  mechanical  convenience,  to  one  or  two 
of  the  most  modern  stores  to  be  found  in  the  United  States  (see  PL  I). 

It  was  found  that  most  of  the  managers  appreciate  the  economy  of 
many  of  the  devices  entering  into  modern  store  equipment,  apd  their 
absence  in  a  store  is  usually  due  to  a  lack  of  funds.  There  is  also 
a  general  demand  among  patrons  of  all  classes  for  a  store  that  is 
up  to  date  in  its  equipment  and  appearance.  (See  PL  II.)  To  some 
extent  this  demand  would  seem  to  be  part  and  parcel  of  the  modern 
efficiency  movement,  which  is  reaching  a  considerable  proportion  of 
farm  homes  in  the  form  of  modem  household  conveniences  and  farm 
appliances. 

THE  BALANCE  SHEET. 

Table  YIII  and  Sections  XIII  and  XIV  of  the  questionnaire  pre- 
sent a  summary  of  the  resources  and  liabilities  for  4G  stores  The 
most  interesting  figures  are  those  showing  the  surplus,  undivided 
profits,  and  unpaid  dividends,  amounting  to  a  total  of  close  to 
$460,000,  or  an  average  of  almost  $10,000  per  store.  From  these  fi<T- 
ures  It  would  appear  that  the  stores  are  in  a  very  prosperous  condi- 
tion. Only  4  stores  out  of  46  show  a  deficit  aggregating  $9,214. 
Moreover,  if  to  the  amount  of  average  surplus,  undivided  profits 
and  unpaid  dividends,  the  capital  stock  of  $15,948  is  added,  the 
total  average  resources  will  exceed  the  average  liabilities  by  $25,676 

If  the  stores  are  in  such  splendid  financial  condition,  why  is  it 
that  most  of  them  are  not  paying  regular  dividends?  The  fact  is 
that  for  the  majority  of  the  stores  this  prosperity  is  more  apparent 
than  real.  In  the  first  place,  the  stock  carried  is  too  large  and  the 
average  number  of  stock  turns  a  year  too  low.  Many  of  the  stores 
are  carrying  a  lot  of  stock  which  is  dead  for  the  greater  part  of  the 


Bui.  394,  U.  S.  Dept  of  Agriculture. 


Plate  I. 


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Bui.  394,  U.  S.  Dept.  of  Agriculture. 


Plate  II. 


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A  SURVEY  OF   TYPICAL  COOPERATIVE  STORES. 


21 


year,  and  are  listing  at  full  value  goods  which  are  shopworn  and 
upon  which  it  will  never  be  possible  to  realize  in  full.  Then,  too, 
the  accounts  receivable,  bills  receivable,  and  miscellaneous  assets,  with 
a  total  of  over  $700,000,  an  average  of  $15,000  per  store,  contain 
many  items  which  can  never  be  collected  and  should  be  dropped, 
as  they  only  becloud  the  financial  condition  of  the  store.  As  an 
illustration,  one  small  store  has  been  carrying  $1,200  worth  of  notes 
taken  for  shares  of  stock,  although  they  are  all  past  due;  and  the 
same  association  has  on  its  books  over  $2,000  in  accounts  which  might 
almost  as  well  be  wiped  out  and  charged  off  to  loss  and  gain.  This 
large  proportion  of  more  or  less  fixed  and  doubtful  assets  probably 
goes  far  toward  explaining  the  reason  why  dividends  can  not  be  paid. 

Table  VII. — The  halance  sheet. 
[46  stores.] 


Resources: 

Cash 

Merchandise .... 

Equipment 

Acoounts  receivable. 

Notes  receivable 

Miscellaneous 


Total. 


Liabilities: 

Capital  stock 

Bills  payable 

Acoounts  payable . 

Surplus 

Undivided  profits. 
Unpaid  dividends. 
Miscellaneous 


Total. 


Total  resources 

Total  liabilities.  CTClusive  of  capital  stock, surplus, 
undivided  profits,  and  impaid  dividends 


Total  net  worth. 


Total. 


$95,439.97 
830,272.96 

75,449.40 
339,758,05 

95,255.10 
259,583.69 


1.695,759.17 


733, 592. 74 
236,980.04 
232,579.93 
200,242.68 
238,406.18 
8, 844. 96 
45, 106. 64 


High. 


$20,997.40 
98.460.12 
10.195.88 
48,549.71 
12,253.77 
28,502.83 


Low.i 


$28.15 

800.00 

23.00 


201,091.24         1,113.00 


106,200.00 
22.000.  CO 
18,363.84 
33,318.14 
13,750.60 
3,343.92 
19,200.00 


1.695,759.17     201,091.24 


267.00 


6.02 
5.57 


30.00 


1,113.00 


1,695,759.17 
514,672.61 


1,181,086.56 


Average. 


$2,074.78 
18,049.41 
1,640.21 
7.386.05 
2,070.76 
5,643.12 


36,864.33 


15,947.67 
5,151.87 
5,056.00 
4,353.10 
6,182.74 
192. 28 
980.58 


3S.864.33 


36,864.33 
11,188.54 


25,675.79 


»  Fisrures  in  these  columns  are  independent  of  each  other,  and  the  totals  represent  high  and  low  totals 
not  totals  of  the  other  figures  given. 

OPERATING  EXPENSES. 

Table  ^n[II  shows  the  annual  operating  expenses  of  41  stores. 
This  table  shows  salaries  and  labor,  which  appear  separately  in 
Table  IX.  The  comparative  statement  of  expenses  in  relation  to 
net  sales  is  found  in  Table  X,  which  should  be  studied  carefully  in 
this  connection.  The  number  of  stores  reporting  each  of  the  various 
items  in  Table  VIII  indicates  how  difficult  it  was  to  get  satisfactory 
figures  under  the  different  subheads  in  the  questionnaire.  In  fact, 
it  was  found  to  be  impossible  to  make  a  segregation  of  the  expenses 
on  account  of  the  difference  in  classification  used  by  the  stores.    Many 


-: 


f: 


INTENTIONAL  SECOND  EXPOSURE 


Bui   394,  U.  S.  Dept.  of  Agriculture. 


Plate  II. 


A  SURVEY  OF  TYPICAL  COOPERATIVE  STORES. 


21 


year,  and  are  listing  at  full  value  goods  which  are  shopworn  and 
upon  which  it  will  never  be  possible  to  realize  in  full.  Then,  too, 
the  accounts  receivable,  bills  receivable,  and  miscellaneous  assets,  with 
a  total  of  over  $700,000,  an  average  of  $15,000  per  store,  contain 
man}^  items  which  can  never  be  collected  and  should  be  dropped, 
as  they  only  becloud  the  financial  condition  of  the  store.  As  an 
illustration,  one  small  store  has  been  carrying  $1,200  worth  of  notes 
taken  for  shares  of  stock,  although  they  are  all  past  due;  and  the 
same  association  has  on  its  books  over  $2,000  in  accounts  which  might 
almost  as  well  be  wiped  out  and  charged  off  to  loss  and  gain.  This 
large  proportion  of  more  or  less  fixed  and  doubtful  assets  probably 
goes  far  toward  explaining  the  reason  why  dividends  can  not  be  paid. 

Tarle  VII. — The  halnnce  sheet. 
[40  stores.] 


Resources: 

Cash 

MerchaiKlise 

Equipment 

Acoounf  n  leceivable. . . 

Notes  retvivable 

Miscellaneous 


Total. 


$05,439.97 
830,272.96 

75,449.40 
339,758,05 

95; 255. 10 
259.5S3.69 


Total 1.605,759.17. 


High. 


?20,997.40 
98. 460. 12 
10.195.88 
48.. 549. 71 
IJ.253.77 
28. 502. 83 


Low.i 


$28. 15 

800.00 

23.00 


201,091.24         1,113.00 


Llabilltie.s: 

Capital  stock 7.33, 592. 74 

Bills  payable j      230,986.04 

Acoounts  payable -      232, 579. 93 

Sun^lns 200.242.68 

-    - 238,406.18 

8,^4.% 
45.106.64 


Undivided  profits. 
Unpaid  dividends. 
Miscellaneous 


Total. 


Total  rcsoui-ces 

Total  liabilities. exclusive  of  capital  stock, surplus, 
undivided  profits,  and  impaid  dividends 


Total  net  worth. 


106,200.00 
22.000.  €0 
18,363.84 
33,318.14 
13,750.60 
3,343.92 
19.200.00 


267.00 


6.02 
5.57 


30.00 


Average. 


$•2,074.78 

18,049.41 
1,640.21 
7,. 386. 05 
2,070.76 
5.643.12 


36,864.33 


15,947.67 
5,151.87 
5,056.00 
4,3.53.10 

6,le;2.74 
192. 28 
980.58 


1.695,759.17     201.00124  1       1,113.00 


1,695,759.17 
514.672.61 


1,181,086.56 


33.864.33 


36, 864. 33 
11,188.54 


25,675.79 


1  Fi^ircs  in  these  columns  are  independent  of  each  other,  and  the  totals  represent  high  and  low  totals 
not  totals  of  the  other  figures  given. 

OPERATING  EXPENSES. 

Table  VIII  shows  the  annual  operating  expenses  of  41  stores. 
This  table  shows  salaries  and  labor,  which  appear  separately  in 
Table  IX.  The  comparative  statement  of  expenses  in  relation  to 
net  sales  is  found  in  Table  X,  which  should  be  studied  carefully  in 
this  connection.  The  number  of  stores  reporting  each  of  the  various 
items  in  Table  VIII  indicates  how  difficult  it  was  to  get  satisfactory 
figures  under  the  different  subheads  in  the  questionnaire.  In  fact, 
it  was  found  to  be  impossible  to  make  a  segregation  of  the  expenses 
on  account  of  the  difference  in  classification  used  by  the  stores.    Many 


t 


I  :i 


22 


BULLETIN  394,  U.   S.  DEPARTMENT  OF  AGKICULTUKE. 


J  i"     ' 

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of  them  did  not  segregate  their  expense  accounts  at  all,  but  included 
everything  under  the  one  title  of  "  General  expense." 

Table  VIII. — Annual  operating  expense. 


Salary  and  labor 

Rent 

Light  and  heat 

Insurance 

Taxes 

Telephone  and  telegraph. 

Interest 

Postage  and  stationery. . , 
Miscellaneous 


Number 
of  stores. 


Total  expense ' . 


Profit  for  year. 
Loss  for  year  . . 


31 
23 
16 
30 
21 

8 
25 

5 
36 


41 


31 
2 


Total. 


High. 


$145,553.98 

20,279.76 

2, 194. 18 

9,054.41 

5,957.55 

347. 50 

14,695.68 

874.  44 

195,022.36 


393,979.86 


Low. 


$12,021.95 

1,800.00 

2:;0. 00 

1, 905.  44 

1, 2.:9.  22 

56.00 

2,300.00 

644. 32 

83,623.79 


86, 553.  74 


178,229.31 
2, 4,53. 38 


$720.00 
84.00 
24.00 
22.00 
25.00 
25.00 
37.00 
25.00 
7.10 


946.00 


Average. 


$4,695.93 
881.51 
1  $7. 14 
301.81 
283.69 
43.44 
587.83 
174.89 
5,417.29 


9,609.27 


6, 749. 33 
1,226.(19 


Indicated*^^'^*"^  columns  will  not  balance  since  the  answers  are  given  to  each  case  for  the  number  of  stores 

>  Table  IX. — Monthly  salaries  and  labor. 


Question. 

Number 
of  stores. 

High. 

Low. 

Average. 

Manager 

42 
27 
31 
31 
26 

$250.00 

125.00 

150.00 

90.00 

55.00 

$45.00 
10.00 
45.00 
35.00 
16.00 

$106.00 
6S.87 
74.13 
49.95 
32.10 

Bookkeeper 

Head  salesman 

other  salesmen 

Saleswomen 

Officers  and  directors  usually  receive  the  nominal  sum  of  $1..'50  per  meeting,  except  where  thev  are 
actively  engaged  in  the  busmess,  when  they  are  paid  a  salary  for  managerial  or  accounting  services. 

It  is  believed  that  the  salary  and  rent  items  for  32  and  23  stores, 
respectively,  are  fairly  trustworthy,  the  average  salary  roll  being 
about  $400,  and  the  average  rental  about  $75  per  month.  Even  these 
items  are  not  typical  of  the  stores  covered  by  the  survey,  on  account 
of  the  small  proportion  included. 

The  percentage  of  expense  to  net  sales  is  not  excessively  high.  It 
ranges  from  7  to  17,  with  an  average  of  11.7.  This  percentage  is 
for  33.  of  the  stores,  and  is  probably  a  much  better  showing  than 
would  have  been  made  had  all  the  stores  been  able  to  contribute  to 
the  data  from  which  this  percentage  was  calculated.  In  view  of 
the  fact  that  some. of  the  managers  stated  it  as  their  belief  that  it 
cost  somewhat  more  to  run  a  cooperative  than  a  privately  owned 
business,  this  percentage  is  surprisingly  low.  The  Harvard  investi- 
gation of  grocery  stores  found  the  lowest  cost  of  operation  to  be 
10.4  per  cent  of  sales,  the  highest  25.2  per  cent,  and  the  common 
percentage  16.5,  as  against  the  cooperative  averages  just  quoted. 

In  considering  this  showing  for  the  expense  of  operation,  there 
must  be  taken  into  account  the  average  gross  profit  of  21  per  cent  for 


A  SUEVEY  OF  TYPICAL  COOPERATIVE  STORES. 


23 


the  stores  studied  by  Harvard  as  against  17.7  per  cent  for  the  30 
cooperative  stores  for  which  the  gross  profit  could  be  calculated. 
The  circumstances  under  which  this  investigation  was  made  did  not 
permit  the  investigator  to  go  back  of  the  accounting  system  in  every 
case  to  see  whether  the  data  upon  which  gross  profits  could  be 
estimated  were  sufficiently  reliable. 

For  some  of  the  stores  not  included  in  this  percentage  column 
of  gross  profit,  it  was  quite  certain  that  the  manager  was  working 
in  the  dark,  and  did  not  actually  know  the  amount  of  his  gross 
profit.  For  example,  in  several  cases  a  manager  who  handled  prin- 
cipally groceries  and  farm  produce  said  that  his  gross  profit  was 
about  21  per  cent.  Upon  analyzing  the  statements,  however,  the 
amount  was  found  to  be  very  much  below  what  he  estimated.  This 
was  due  to  the  fact  that  certain  commodities,  such  as  butter,  eggs, 
sugar,  flour,  and  practically  all  farm  produce  was  handled  upon  a 
very  close  margin,  and  sometimes  at  an  actual  loss.  These  items 
bulked  much  more  largely  in  the  total  business  than  the  manager 
realized.  One  store,  for  example,  went  bankrupt  within  a  period 
of  10  months  because  its  manager  thought  he  was  running  upon  an 
average  of  20  per  cent  gross  profit,  while  in  reality  he  was  running 
at  a  net  loss  of  7  per  cent  on  sales,  and  his  gross  profit  was  only  a 
little  over  10  per  cent. 

Referring  once  more  to  Table  X,  we  find  that  the  average  cost  of 
all  salaries  and  labor  amounted  to  a  total  of  6.4  per  cent  of  the  net 
sales  as  compared  with  11.7  per  cent  for  the  total  expense.  That  is, 
the  salaries  and  labor  form  54.7  pef  cent  of  the  total  expense  of 
running  the  business.  This  surely  is  not  excessive.  The  Harvard 
survey  of  grocery  stores  disclosed  the  fact  that  the  salaries  in  the 
average  retail  grocery  under  private  management  were  60.6  per 
cent  of  the  total  expense,  or  almost  6  per  cent  higher.  This  is  borne 
out  by  Table  IX,  which  summarizes  the  results  of  the  investigation 
of  wages  paid.  For  42  stores  the  average  salary  paid  the  manager 
was  $106  per  month.  But  if  6  of  the  stores  which  pay  their  manager 
$150  per  month  or  over  are  eliminated,  the  average  for  the  other  36 
amounts  to  only  $79.50.  The  average  salary  for  the  bookeeper  was 
also  too  low  to  secure  efficiency.  The  10  States  in  which  these  stores 
are  located  have  average  wages  considerably  higher  than  the  average 
would  be  for  the  country  as  a  whole;  from  this  it  is  seen  that  the 
wages  paid  by  the  cooperative  stores  are  very  low. 

In  addition  to  the  regular  salaries  and  wages  indicated  in  Table  X 
there  are  insignificant  outlays  for  officers  and  directors,  and  often  for 
an  occasional  helper.  The  most  common  policy  is  for  associations 
to  pay  their  directors  $1.50  for  each  meeting  attended,  except  where 
they  occupy  a  position  in  the  business  on  regular  salary.  Occasional 
lielp  costs  the  daily  wage  of  from  $1  to  $2.50  a  day,  with  an  average 


I 


24 


BULLETIN  394,  U.  S.  DEPARTMENT  OF  AGRICULTURE. 


A  SURVEY  OF  TYPICAL  COOPERATIVE  STORES. 


25 


of  about  $2  per  day.  The  proportion  which  these  items  bear  to  the 
total  wages  paid  is  not  very  significant  and  has  been  included  in  the 
labor  percentage  column  in  Table  X. 

In  addition  to  their  regular  wages,  the  cooperative  laws  of  some 
States  stipulate  that  employees  shall  receive  dividends  on  the  amount 
they  receive  as  wages,  just  as  members  receive  dividends  on  purchases. 
As  a  matter  of  fact,  however,  this  principle  of  dividends  and  bonuses 
to  employees  is  generally  ignored,  and  some  stores  even  go  so  far 
as  to  stipuhite  in  their  by-laws  that  no  employee  shall  receive  any 
reduction  on  purchases.  Employees  in  such  stores  must  become  meni- 
bers  in  order  to  participate  in  dividends.  Among  the  stores  visited 
during  the  survey  only  2  were  found  which  actually  had  distributed 
dividends  on  wages. 

Table  X. — Important  percentages  based  on  sales. 


St<>re  No. 


Sales. 


1 §623,703 

2 R32,0(jO 

3 200,000 

4 177,546 

.■> 174,997 

6 168,546 

7 143,000 

tt !  96,000 

12 

13 


Ex- 
pense. 


95,916 
87,009 
69,000 
68,000 

14 1      67,074 

15 j      65,708 

16 1       65, 152 

17 j      63,978 

18 60,000 


19 

20. 

21. 

22. 

23. 

24. 

25. 

26. 

27. 

28. 

29. 

30. 

31. 

32. 

33. 

34. 

35. 


Average. 


60,000 
50.000 
44.000 
44,000 
42,000 
41,000 
40,000 
40,000 
40,000 
38,000 
36,413 
34,804 
22,000 
20,000 
20,000 
19,000 
7,500 


$86,5.54 

10. 221 

24,915 

24.904 

23,037 

16,115 

11,522 

14.941 

12,558 

13,325 

7,285 

6,840 

10,114 

8, 104 

6,445 

6,719 

6,938 

5,404 

5,037 

5,512 

5,332 

4,964 

6,097 

4,167 

4,620 

5, 109 

4,000 

5,949 


Per 
cent. 


3,086 
3,730 


3,249 

2,957 

946 


13.8 
7.0 
12.4 
14.9 
13.1 
9.6 
8.0 
11.5 
13.0 
13.9 
8.3 
9.9 
14.9 
12.2 
9.7 
10.2 
10.8 
9.0 
8.3 
9.8 
12.1 
11.3 
14.5 
10.1 
11.5 
12.9 
10.0 
15.5 


Salary 

and 

labor. 


$11,201 


Per 

cent. 


Net 

profit. 


Per 
cent. 


5.0 


12,022 
10, 193 
9,000 
7,801 
6,472 
6,440 

*4,"9S6" 
«,075 
4,909 


8.8 
17.0 


3,982 
4,359 
2,685 
3,800 
3,563 
2,858 
3,080 
3,900 
3,015 
3,300 
3,246 


7.0 
5.5 
6.3 
6.0 
6.8 
6.7 

"7.'2' 
9.0 
7.3 


16.2 
15.5 
12.6 


11.7 


3,357 
2,752 
1,772 
1,900 


1,976 

1,620 

720 


6.1 

6.9 
4.6 
6.3 
6.4 
6.3 
7.0 
9.4 
7.4 
8.2 
8.0 


8.8 
7.7 
5.2 
8.6 


9.8 
8.5 
9.5 


6.4 


Sl)«).282 
10,050 
6.375 
8,712 
4,377 
17,  VJ2 
9,927 
9,313 
5,170 

9,763 

648 

>  753 

2,6t6 

4,424 

3,775 

1,453 

P28 

2.774 

1,032 

3.2';9 

536 

1,310 

1,245 

783 

400 

1,701 


1,027 
460 


10.6 
4.3 
3.1 
4.9 
2.5 

10.2 
6.9 
7.2 
5.4 


Per 

cent 

pross 

profit. 


11. 

I  i. 
4. 
6. 
5. 


2 
9 
1 
0 
7 
8 
2.2 
1.6 


138 
'302' 


3.0 
2.0 
1.0 
4.2 


3.0 
2.1 


0.7 

'i'.s 


6.0 


24.4 
11.3 
15.5 
18.9 
15.6 
19.6 
14.9 
18.7 
18.4 

'i8.'4' 
10.8 
13.8 
16.2 
14.9 
16.0 
13.0 
10.5 
12.9 
17.0 
19.5 
12.5 
17.6 
13.1 
13.5 
13.9 
14.2 


11.8 
19.1 


Inven- 
tory. 


Stock 

turns 

per 

year. 


198.460 
30,477 
61,952 
67,588 
24, 104 
42,600 
40,007 
30,781 
11, 169 


6.3 
7.3 
3  8 
2.5 
7.3 
3.8 
3.5 
4.2 
8.6 


16.9 
■i7."4 


9,924 

8.8 

31.071 

2.2 

11,850 

5.7 

19.075 

3.5 

4,060 

16.1 

18,413 

3.5 

19,141 

3.3 

14,503 

4.1 

18, 161 

3.3 

16,122 

3.4 

15,587 

2.8 

8,799 

6.0 

18,278 

2.3 

11,004 

3.7 

7,249 

5.5 

9,300 

4.3 

9,158 

4.3 

12,816 

2  9 

9,171 

3  9 

7,495 

4.7 

6,733 

3.3 

8.341 

2.4 

8,813 

2.3 

8,999 

2.1 

1,731 

4.4 

17.7 


4.4 


>  Loss. 


The  directors  of  one  of  the  most  progressive  of  the  stores  have 
made  the  provision  that  when  profits  reach  a  certain  figure  em- 
ployees are  made  participants  in  the  increase.  This  is  in  the  form 
of  a  bonus,  the  payment  and  amount  of  which  is  left  to  the  discre- 
tion of  the  board  of  directors. 


As  has  already  been  noted  in  the  introductory  section,  the  results 
summarized  in  Table  X  can  not  be  considered  conclusive.  In  the 
first  place,  the  number  of  stores  having  accurate  records  is  too  small. 
Again,  the  great  variety  of  method  in  keeping  the  records  makes  it 
impossible  to  classify  the  data  accurately.  Finally,  although  most  of 
the  30  stores  from  which  the  best  records  were  obtained  are  of  the 
general-merchandise  type,  the  number  of  departments  and  the 
amount  of  business  done  in  each  varies  greatly  throughout  the  list. 
The  rate  of  profit  as  well  as  the  expense  of  handling  varies  for  each 
kind  of  goods,  such  as  groceries  and  provisions,  dry  goods,  boots 
and  shoes,  drugs,  hardware,  and  implements.  Accurate  comparison 
of  operating  expenses  would  necessitate  separate  sets  of  records*  for 
each  of  these  different  lines,  but  since  expenses  are  not  segregated,  it 
follows  that  a  comparison  of  operating  expenses  does  not  give  an 
accurate  index  of  the  efficiency  of  the  management. 

However,  the  table  does  indicate  that  it  is  possible  to  make  a  sav- 
ing through  cooperative  stores.  It  indicates  also,  to  some  extent, 
the  conditions  under  which  a  saving  is  possible.  There  are  tT^o  fac- 
tors entering  into  the  determination  of  the  net  profit.  The  first  is 
the  percentage  of  gross  profit  made  on  sales  and  the  second  is  the 
percentage  which  the  expense  bears  to  sales.  TKe  table  indicates 
the  relationship  which  must  exist  between  these  percentages  if  a 
saving  is  to  be  made  which  will  justify  the  existence  of  a  cooperative 
store.  The  careful  manager  should  never  delude  himself  by  vague 
generalities,  but  must  take  into  account  every  single  factor  in  his 
business  bearing  on  both  the  gross  profit  and  the  expense.  Only 
by  constant  checking  on  both  of  these  factors  can  he  be  certain  of 
permanent  success. 

Table  XI. — Summary  of  preceding  tables. 

Average  number  of  members   (43  stores) 228 

Total  resources  (46  stores) $1,695,759.17 

Total  liabilities   (46  stores) $514,672.61 

Total  paid-up  capital   (50  stores) $asi,  377.  98 

Average  resources  (46  stores) $36,854.33 

Average  liabilities   (46  stores) ^     $11,188.54 

Average  paid-up  capital  (.50  stores) _i $16,627.56 

Average  net  worth    (46  stores) _ $25,675.79 

Average  surplus,   undivided  profits,   and  unpaid   dividends    (46 

stores)  $9,  728. 12 

Average  per  cent  membership  trade  (42  stores) per  cent—  60 

Average  per  cent  credit  sales  (36  stores) do 50 

Average  rate  of  interest  paid  on  borrowed  capital    (37  stores) 

per    cent 7 

Average  per  cent  active  members  (37  stores) per  cent__  80 

Average  annual  sales  (45  stores) $87,781.91 

Average  gross  profit  on  sales   (29  stores) per  cent__  •     17.7 


M 


t 

M 


^i 


m 


^. 


it 


26 


^ 


\h 


BULLETIN  3&4,  U.  S.  DEPARTMENT  OP  AGRICULTUBE. 


A  SUEVEY  OP  TYPICAL  COOPEEATTVE  STORES. 


27 


Average  rate  of  operating  expenses  on  sales  ( 33  stores )  ..per  cent. 

Average  produce  bought  (estimated)    (22  stores) 

Average  annual  cost  of  audit  (15  stores) "___] 

Manager's  average  monthly  salary  (42  stores) ~_[ 

Salesmen's  average  monthly  salary   (31  stores) [ 

Saleswomen's  average  monthly  salary  (26  stores) 


11.7 

$12, 126.  08 

$56.  00 

$106.00 

$50.00 

$32.00 


OBSERVATIONS  AND  CONCLUSIONS. 


The  figures  collected  in  this  survey  bring  the  conclusion  that  the 
majority  of  the  cooperative  stores  established  are  unsuccessful  in  . 
achieving  their  main  object— saving  on  purchases  to  members  and 
a  reduction  of  the  high  cost  of  living.    This  conclusion  is  borne  out 
by  the  supplementary  notes  collected  from  managers  who  could  not 
apply  statistics,  and  by  notes  on  interviews  with  leaders  who  are 
acquainted  with  the  store  movement  in  whole  sections  which  could 
not  be  covered  in  detail.    But  that  there  is  one  real  service  which 
the  cooperative  stores  have  performed  seems  to  have  been  demon- 
strated again  and  again.     Even  in  cases  where  stores  have  failed 
absolutely   and   gone  into  bankruptcy,  they  have   frequently   been 
responsible  for  the  introduction  of  improved  business  methods  in 
the  towns  where  they  were  established.    They  have  had  the  effect 
of  stimulating  competition.     In  cases  where  the  merchants  have 
competed  keenly  against  the  cooperative  store,  they  have  been  com- 
pelled to  adopt  more  efficient  business  methods.     This  has  resulted 
in  lower  prices  to  every  consumer  in  the  locality  and  frequently  in 
better  prices  to  farmers  on  produce. 

In  the  case  of  one  particular  farmers'  store,  it  was  estimated  that 
the  farmers  of  the  locality  received  an  increase  on  their  butter,  eggs, 
and  poultry  in  one  year  which  would  have  amounted  to  more  than 
the  entire  paid-in  capital  stock  of  the  cooperative  store.  This  gain 
went  to  every  farmer  in  the  community  regardless  of  whether  or 
not  he  was  a  member  of  the  cooperative  association. 

Table  XII. — General  comments. 

Is    the   business    in    satisfactory    con- 
dition (manager's  opinion) 32  yes;  15  fair;  1  no. 

Has  the  business  been  reorganized 6  yes ;  37  no. 

Expansion  planned 12  yes;  30  no. 

Educational   propaganda 12  yes;  30  no. 

Probable  future  (manager's  opinion) ..Bright,  20;  good,  11;  fair,  3;  doubtful, 

12;  not  good,  3. 

Cooperation  with  other  merchants 8  yes;  33  no. 

Are  employees  members? ___9  yes;  24  no. 

How  do  expenses  compare  with  private 
business  in  town? 4  higher;  12  same;  11  lower. 


The  manager  of  one  of  the  most  successful  of  the  stores  included  in 
the  survey  expressed  the  conviction  that  the  cooperative  store  is  to 
the  business  community  what  the  governors  are  to  the  steam  engine, 
and  that  on  account  of  its  regulative  influence  there  ought  to  be  a 
cooperative  store  in  every  town.  The  same  manager  was  of  the 
opinion  that  it  would  be  an  equally  undesirable  condition  to  elimi- 
nate privately  owned  business  from  any  town. 

In  addition  to  whatever  salutary  influence  the  cooperative  store 
may  have  upon  the  business  community,  the  survey  shows  that  there 
are  possibilities  in  the  cooperative  store,  if  properly  organized  and 
managed,  for  the  accomplishment  of  important  savings  to  members, 
thus  opening  the  way  for  a  reduction  of  the  high  cost  of  living.  This 
leads  to  a  summary  of  the  conditions  of  success  and  the  causes  of 
failure. 

Briefly  stated,  the  conditions  of  success  may  be  summarized  under 
the  headings ^ :  (1)  Leadership;  (2)  capable  management ;  (3)  favor- 
able environment;  (4)  adequate  legal  safeguards. 

(1)  Leadership. — In  every  case  where  a  store  was  found  to  be  a 
conspicuous  success,  thatt  success  could  be  traced  to  the  influence  of 
some  conspicuous  leader.  The  part  which  leadership  plays  in  hold- 
ing the  membership  of  the  association  loyal  to  their  store  is  not  con- 
fined to  the  organizer.  The  outstanding  leader  who  has  the  ability 
to  round  up  the  community  must  be  supported  by  others  who  have 
some  talent  for  leadership.  The  manager  himself  must  be  "  a  good 
mixer."  In  fact,  in  the  most  successful  stores  every  clerk  has  been 
chosen  with  a  view  to  adding  more  enthusiasm  and  support  to  the 
business.  Leadership,  to  be  permanently  successful,  must  build  up 
an  organization  which  will  be  self-supporting  and  self-perpetuating. 
A  mistake  frequently  made  by  the  leader  responsible  for  the  estab- 
lishment of  a  successful  association  is  that  he  does  not  provide  the 
necessary  organization  which  will  enable  it  to  perpetuate  itself  after 
he  has  severed  his  connection.  Where  such  is  the  case,  the  societv  is 
foredoomed  to  go  to  pieces  as  soon  as  the  strong  leader  is  removed. 
Cohesion  must  ultimately  rest  on  education,  on  loyalty  to  an  institu- 
tion, and  on  principle  rather  than  on  the  blind  following  of  a  leader. 

(2)  Capable  management. — After  all  that  has  been  said,  little  need 
be  added  in  support  of  capable  management  as  an  essential  condition 
for  the  success  of  the  cooperative  store.  It  should  always  be  remem- 
bered that  business  efficiency  is  as  essential  in  the  cooperative  as  in 
any  other  type  of  business  organization.  Unfortunately  for  the 
movement,  the  average  enthusiast  who  feels  a  call  to  promote  the 
cooperative  movement  has  in  the  past  laid  more  stress  on  sentiment 

*  Compare  with  the  rules  adopted  by  the  Rochdale  pioneers  in  1844  and  the  causes  of 
failure  of  cooperative  stores  as  given  in  :  Wisconsin  State  Board  of  Public  Affairs.  Report 
upon  Cooperation  and  Marketing,  1912,  pp.  29,  34. 


.«■ 


M 


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BULLETIN  3^,  U.   8.   DEPARTMENT  OF  AGRICULTURE. 


than  on  business  efficiency.     This  type  of  promotion  is  usually  fol- 
lowed hy  a  policy  which  soon  brings  the  business  to  a  disastrous  end. 
(3)  Favorable  environrmnt—ln   several   communities  in   which 
successful  cooperative  stores  were  found,  investigation  revealed  that 
tliere  had  previously  existed  some  natural  bond  of  union,  which  in 
Itself  was  an  important  factor  in  determining  the  welfare  of  the 
business.     Of  these  may  be  mentioned  predominating  nationality 
common  occupation,  church  affiliation,  and  fraternal  organization' 
Ihe  existence  of  such  communities  may  be  taken  as  a  good  omen 
for  the  success  of  any  kind  of  business  organization  on  the  coopera- 
tive plan.  * 

(4)  Adequate  legal  safeguards.— X  cooperative  association,  even 
more  than  a  corporation,  requires  a  legal  standing  which  will  secure 
safety.  Every  cooperative  association  is  intended  to  be  a  sort  of 
pubhc-service  institution,  and,  as  such,  it  should  have  the  legal  safe- 
guards which  some  States  have  provided  by  recently  passed  cooper- 
ative laws.  In  one  of  these  laws,  a  survey  of  the  locality  is  stron^rly 
recommended  before  an  organization  is  effected.  The  same  law  *^re- 
quires  financial  statements  to  be  sent  twice  a  year  to  an  official 
charged  with  the  duty  of  protecting  members  of  cooperative  asso- 
ciations. 

The  causes  of  failure,  it  is  evident,  are  largely  the  opposite  of  those 
conditions  which  make  for  success.  The  converse  of  the  foregoing 
four  conditions  of  success  would  be:  (1)  Lack  of  leadership-  (2) 
poor  management;  (3)  unfavorable  environment:  and  (4)  lack  of 
proper  legal  safeguards. 

(1)  Lack  of  leadership.— Frequently  an  outside  leader  comes  into 
the  community  and  through  his  enthusiasm  arouses  the  people  to 
a  condition  in  which  they  are  ready  to  enter  upon  the  establishment 
of  a  cooperative  store.  Then,  after  seeing  the  enterprise  started, 
he  goes  to  other  communities  and  leaves  the  association  to  work  out 
its  own  salvation.  In  many  such  communities  the  organization  dies 
from  lack  of  interest  as  soon  as  the  promoting  spirit  is  gone.  In 
other  cases,  the  leadership  in  a  community  may  be  of  such  an  un- 
practical character  as  to  lead  the  association  into  attempting  some- 
thing which  is  actually  impossible  of  realization.  In  such  cases  also 
disaster  is  sure  to  follow.  '  .       ' 

(2)  Poor  mmiageinent.— Let  the  management  be  ever  so  efficient 
an  association  may  still  fall  short  of  success  if  unpractical  leaders' 
lorce  it  into  attempting  the  impossible.  But  even  if  it  be  presup- 
posed that  the  business  is  adapted  to  the  needs  of  the  community 
and  every  other  condition  favorable,  it  may  still  fail  entirely  through 
bad  management.  Among  the  outstanding  shortcomings  of  the  in- 
efficient manager  have  been  noticed  reckless  buying,  excessive  exten- 


A  SURVEY  OF  TYPICAL  COOPERATIVE  STORES. 


29 


sion  of  credit,  too  great  overhead  expense,  overexpansion,  failure  to 
provide  a  surplus,  no  allowance  for  depreciation,  inefficient  business 
practice  and  accounting  methods,  lack  of  proper  auditing,  and  failure 
to  secure  the  support  of  wholesale  houses  because  of  scattered  buying. 

(3)  Unfavorable  environment. — Where  a  cooperative  association 
has  been  thrust  into  a  community  which  is  naturally  divided  against 
itself  through  racial  prejudice,  interdenominational  strife,  excessive 
individualism,  or  where  there  is  insufficient  business  to  pay  the  ex- 
penses of  a  store,  there  can  be  little  hope  of  success  for  the  associa- 
tion. 

(4)  Laxih  of  proper  legal  safeguards. — One  cause  of  the  failure 
of  man}'  different  types  of  cooperative  associations  is  the  lack  of 
proper  legislation.  Some  of  the  stores  organized  in  the  early  days 
under  corporation  laws  have  had  their  stock  centered  in  the  hands 
of  a  small  body  of  members  w  ho  have  controlled  the  association  in 
their  own  interests,  and  have  distributed  among  themselves  whatever 
surplus  accrued  as  dividends  upon  capital  stock.  This  means  the 
entire  failure  of  the  association  from  the  cooperative  standpoint. 
On  the  other  hand,  cooperative  laws  have  been  passed  by  many  States 
that  offer  no  adequate  safeguards  in  the  form  of  preliminary  inves- 
tigation and  subsequent  inspection.  On  account  of  the  semipublic 
nature  of  the  cooperative  business,  it  is  believed  that  both  of  these 
safeguards  are  essential  to  success. 


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APPENDIX. 

Notes  on  the  Payment  of  Trade  Dividends.    ' 

I.  Stores  having  paid  dividends  regularly  out  of  profits  (17)  : 

*1.  Organized   1905.     Had   missed   paying  trade  dividend   only  once  in 
10  years. 

2.  Organized  1908.     1909,  21  per  cent ;  1910,  16  per  cent ;  1911,  10  per 

cent ;  1912,  10  per  cent ;  1913,  8  per  cent ;  1914,  doubtful.  One  of 
the  mistakes  of  the  first  years  was  the  payment  of  too  large 
dividends. 

3.  Organized  1912.     Interest  on  stock  iias  been  paid  regularly.     Divi- 

deuds :  1911,  10  per  cent ;  1912,  6  per  cent ;  1913,  14  per  cent ;  1914, 
12  per  cent. 

4.  Organized  1911.     Seven  per  cent  interest  paid  regularly.     Divi<lends: 

1911,  $1,734.30;  1912,  $8,140.52;  1913,  $9,170.59;  1914,  $9,914.30. 

5.  Orgaidzed  1912.    Made  large  profit  every  year,  and  paid  interest  and 
^  trade  dividends  regularly. 

a  Organized  1904.     Stock  now  worth  $140.    Has  paid  interest  and  divi- 
dends regidarly. 

7.  Organized  1908.    Dividends:  1911,  2  per  cent;  1912,  2^  per  cent;  1913. 

3  per  cent ;  1914,  3  per  cent.    Surplus,  $4,339. 

8.  Organized  1890.     Interest  and  dividends  paid  regularly  for  25  years. 

Total,  $1,277,865.94.  Range  from  9  to  13  per  cent  on  purchases,  to 
members  ordy. 

9.  Organized   1889.     Forty-nine  semiannual   dividends   in   25  years;   3 

per  cent  purchase  dividend  to  all.  Regular  stock  dividends'  to 
members  only. 

10.  r)rganized  1893.     Twenty-two  years  old.    Trade  dividend  every  year 

from  3  to  5  per  cent,  members  only ;  $6,600  surplus  and  undivided 
profits. 

11.  Had  paid  dividends  regularly;  1913,  5  per  cent;  1914,  6  per  cent. 

12.  Organized  1912.     Paid  $2,300  dividend  1913;  making  good  profit. 

13.  Organized  1897.     Paid  12  per  cent  dividends  and  6  per  cent  interest 

in  1914 ;  very  successful. 

14.  Organized  1890.     Except  first  year  had  paid  dividends  ranging  from 

6  to  10  per  cent. 

15.  Organizefl  1918.    Claims  regular  payment ;  business  seems  prosperous; 

no  specific  figures. 

16.  Paid  5  to  15  per  cent  dividend  every  year  for  6  years;  had  largo 

surplus. 

17.  Organized  1906.     Trade  dividends  have  been  paid  every  year  until 

last  year,  3  to  5  per  cent.    Had  a  very  small  surplus. 


1  The  numbers  are  not  the  same  as  In  Table  X. 


A  SUBVEY  OF  TYPICAL  COOPERATIVE  STORES. 


31 


IT.   Stores  having  paid  dividends  irregularly  out  of  profits  (3)  : 

18.  Paid  dividemis  19(r3.  1904,  1905;  surplus,  $33,000. 

19.  Organized  1912.     Auditor  in  1914  advised  not  paying  dividends  be- 

cause of  large  amount  of  subscribed  capital  uni)aid,  although  profit 
was  made. 

20.  Organized  1876.    Originally  paid  dividends,  but  not  since  1912. 

III.  Stores  paying  trade  discount  instead  of  dividends  (3)  : 

21.  Organized  1912.     Discount  of  5  per  cent  if  account  is  paid  in  full 

within  30  days. 

22.  Organized  1911.     Discount  of  5  per  cent  if  account  Is  paid  in  full 

within  30  days. 

23.  Discount  of  5  j^er  cent  to  members  if  account  is  i>aid  in  full  within 

30  days. 

IV.  Stores  having  paid  dividends  out  of  capital  (7)  : 

24.  Organized  1913.    Paid  5  per  cent  in  1915  out  of  capital.    Report  shows 

that  in  reality  there  was  a  deficit. 
25..  Organized  1910.     Only  one  dividend  has  been  paid,  in-  1911.     Deficit, 
$1,200,  in  1914. 

26.  Organized  1913.     Paid  first  year  only.     Suffered  from  overexpansion, 

but  is  now  in  fair  way  to  succeed. 

27.  Organized  1912.    Dividends  paid  first  two  years  out  of  capital ;  deficit, 

$5,000. 

28.  Organized  1912.    Paid  6  per  cent  first  year  only  ;  present  deficit,  $5,000. 

29.  Organized  1903.     Paid  several  large  dividends  out  of  capital ;  now  in 

hands  of  receiver. 

30.  Organized  1903.     Paid  dividends  regularly  1906  to  1912  out  of  capi- 

tal. Failed  to  take  into  consideration  bad  debts  and  depreciation, 
with  resultant  false  showing.  "  One  of  the  great  mistakes  of  the 
store."    Surplus,  $800.     . 

V.  Stores  paying  only  stock  dividends  (3)  : 

31.  Organized  1876.    Average  70  to  10  per  cent  annually  on  stock. 

32.  Average  for  last  five  years  is  10  per  cent  to  members.    Xoue  to  non- 

members.  Now  a  regular  stock  company,  but  said  to  retain  **  the 
cooperative  spirit." 

33.  Organized  1889.    Now  a  regular  stock  company.    Had  failed  to  make 

profit  only  one  year.  Stock  now  worth  500  per  cent,  because  the 
profits  of  five  years  were  allowed  to  remain  in  the  business. 
Twenty  yearly  dividends  on  stock  only  have  been  paid,  ranging 
from  6  to  50  per  cent. 

VI.  Stores  having  paid  no  dividends  (14)  ; 

34.  Organized    1913.     No   dividends  imid   "on   account   of  disloyalty   of 

members." 

35.  Organized  1910.    No  dividends  have  been  paid.     In  1914  had  a  $4,(KK) 

deficit. 

36.  Organized  1910.    Neither  interest  nor  dividends  have  been  paid ;  plan- 

ning to  reorganize  as  stock  company. 

37.  Organized  1912.     On  verge  of  bankruptcy. 

38.  Organized  1914.    Hopes  to  pay  6  per  cent  to  members  and  3  per  cent 

to  nonmembers ;  ver^,  co^iservative  management. 

39.  Organized  1912.    No  dfvi^aends'.pAifi,, '1  du^  to  eicessive  credit."     Ex- 

pect to  pay  onefn  the  nbar'fuituref  "6  per  c^nt  interest  paid  on 
capital.  ,    . 


30 


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32  BULLETIN  394,  U.   S.  DEPARTMENT  OF  AGRICULTURE. 

VT.  Stores  having  paid  uo  ilivideud« — Continued. 

40.  Organized  1911.     No  dividend  paid.     "Victim  of  early  mismanage- 

ment," but  now  said  to  l)e  on  road  to  success. 

41.  Organized  1912.     No  dividends  paid.     Has  a  consideral^le  deficit. 

42.  Organized  1877.    No  dividends  or  interest  paid ,  bad  management. 

43.  Organized  1909.    Failed  twice,  due  to  mismanagement.    No  dividends 

have  been  paid. 

44.  Organized  1912.    No  dividends;  business  in  unsatisfactory  condition. 

45.  Organized  1903.    No  dividends  paid,  due  to  excessive  cretlit  and  loss 

by  fire. 

46.  Six  years  ago  had  large  deficit.     No  <lividends.     Is  buiUling  up  sur- 

plus now,  and  appears  to  be  in  prosperous  condition. 

47.  Organized  1912.    No  reliable  information,  but  appears  to  be  in  very 

unsatisfactory  condition. 

o 


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